The coffee shops of Mayfair

2006 Early Stage Venture Capital into European Web2.0

I have now pulled together all the numbers for European Seed and First Rounds into consumer and internet businesses in 2006.  (The final list is  at the bottom of the post in all its glory). 

So what are the headlines?

European Web2.0 investments are BIG and have skyrocketed from last year. 

More than £144mn was raised in Europe across seed and first rounds in 2006 by 54 European web2.0 companies.  This total doesn’t include the “undisclosed investment” rounds, of which there were 16.

The growth is remarkable. 

In the UK in 2005, just £24mn was invested into web2.0 companies.  In 2006 that figure increased threefold with £79mn worth of early stage investments into 21 companies.

VC investment patterns are changing

Active VCs

Index Ventures is the most active. No surprises there.  But a quick look at their syndicate partners shows the (re) arrival of the Americans. Sequoia doing a first round in Europe!? Rather surprisingly the active investors aren’t just the London based mega-funds like Benchmark and Accel: Great to see Mangrove coming out on the front foot after the success of Skype.  Finally the activity of not usually headline grabbing Nordic Venture Partners.

Investment strategy

Astonishing that we don’t see any investments in the area from 3i.  I would have expected to see something from them, not just because they’re the biggest and oldest player in Europe, but also because in 2006 they recruited the incredibly web-savvy Daniel Waterhouse from Yahoo!  Maybe 2007 Daniel?

Also interested to see Atlas Ventures back with a vengeance.  Their investment strategy seems to be following copycat models Daily Motion (YouTube), Koodos (Yoox), and I understand another business (to be announced) is also directly competitive to a UK venture backed web property.  Is this accident or design Fred? 

Range of web businesses

Companies that make money

Good to see that many of this new breed of web company has very explicit revenue generating capabilities; they are either stores/services (Wiggle, Stardoll, Moo.com), or they facilitate the process of buying/selling somehow.

Models that build on models

I am really interested to see two types of companies using third-party web-services as a platform. Firstly, eBay is the platform for two VC backed businesses.  Autoquake  helps people sell their cars on eBay, auctioning4u helps anyone sell anything on ebay.  Secondly there are web-services which serve parts of their sites onto other peoples. Examples include Reevoo  serving their genuine customer reviews onto retailers sites, or Dailymotion allowing bloggers to show video on their
sites.

Ecosystem 2.0

European politicians should be delighted that we have a thriving entrepreneurial ecosystem which they have been attempting (hoping) to build to compete with the USA, principally the West Coast. 

Interestingly, this ecosystem is not centering on the Universities or the government sponsored funds.

It is instead the Silicon Valley model of second time round entrepreneurs, experienced business angels and VCs who have already been through a few cycles.  So we see the team behind Active Hotels either as Execs or Angel investors at Reevoo.com .  We see Mel Morris of match.com as an angel investor into SoFlow.com.  Firebox founder Michael Smith doing it again with Mindcandy. Pierre Chapaz, founder of Kelkoo.com is now at Index Ventures. We see  second time round entrepreneurs are Eyeka (CEO Giles Babinet sold Musiwave), the Skype guys doing The Venice Project & Fon's Martin Vavarsky previously founded Ya.com and Jazztel.

Company	Investors	Description	£MM	Location	Round	Date
Aggregator	Amadeus , Intel Capital , 3i	WebTV	9	UK	1	Jul-06
All Peers	Index Ventures , Mangrove	Private P2P media sharing	W/H	UK	1	Mar-06
Auctioning4u	Foresight Venture Partners	eBay drop-off stores	2.2	UK	1	May-06
AutoQuake	Accel Partners	Sell cars over the web	3.4	UK	1	Jul-06
Bebo	Benchmark Capital	Social networking community	8.5	UK	1	May-06
Exabre	Eden Ventures	www.thefilter.com itunes plug-in. Last.fm-esque	W/H	UK	1	N/D
Koodos	Atlas Venture	End of line retail.	W/H	UK	1	Jun-06
Last.fm	Index Ventures, Atomico	Consumer audio filter	2	UK	1	May-06
Mform	Artemis	Online mortgage comparison	2.5	UK	1	Sep-06
Mind candy	Index Ventures , New Media Spark	Online / offline games	3.97	UK	1	Oct-06
Moo Print	Atlas Venture, Index Venture	Customized printing solutions	2.83	UK	1	Apr-06
Murcia Solstice	Enterprise Ventures	Web and text social network	0.55	UK	1	N/D
Netvibes*	Index Ventures , Accel Partners	Ajax desktop / DLA /Filter	8.17	UK	1	Aug-06
Reevoo	Eden Ventures	Online publisher of genuine customer reviews	2.5	UK	1	Dec-06
Seat Wave	Not disclosed	Viagogo lookalike	W/H	UK	1	N/D
Skinkers	New Media Spark	RSS publishing	2	UK	1	Jan-06
Soflow	Kodiak , Northbridge	Social networking for  professionals	2.8	UK	1	Mar-06
Viagogo	Index Ventures, Atomico	Online Ticket exchange	9.9	UK	1	Jun-06
Wayn	Esprit, Angels	Social Network for travel	5.5	UK	1	Nov-06
Wiggle	Isis	ecommerce: online retail	12.5	UK	1	Jul-06
Yuuguu	Enterprise Ventures	Enterprise collaboration	0.6	UK	1	Oct-06
Jalbum	Nordic Venture Partners	Web photo album tool	W/H	Sweden	1	Jul-06
Polar Rose	Nordic Venture Partners	Online photo search	2.72	Sweden	1	Jul-06
Stardoll *	Index Ventures , Sequoia	Online dress-up community	6	Sweden	1	Jun-06
Fon *	Sequoia , Google , Index	WiFi sharing	12.33	Spain	1	Feb-06
Properazzi	Mangrove, Angels	Property Search	W/H	Spain	1	Nov-06
ebuddy	Lowland Capital	Multiformat IM	3.41	Netherlands	1	Oct-06
Spotzer	Undisclosed	Ready to air video advertising	W/H	Netherlands	1	Jun-06
Pigsback	Angels	Consumer coupon and discount site	2	Ireland	1	Oct-06
SevenLoad	New Media Ventures, Stroer	Video platform & white label service	W/H	Germany	1	Nov-06
CoComment	Netage Capital Partners	Blog comment tracking	0.75	Germany	1	Dec-06
DJTunes.com	High Tech Gründerfonds	Online music Download	0.3	Germany	1	Dec-06
Imageloop	Angels	European Slide.com	0.6	Germany	1	Dec-06
Kimeta	High Tech Gründerfonds	Vertical Search (jobs)	W/H	Germany	1	Dec-06
Locr	High Tech Gründerfonds	Photo Tagging	0.39	Germany	1	Dec-06
Nachtagenten	Burda Digital Ventures	German Clubbing Social Network	W/H	Germany	1	Dec-06
Page Flakes	Benchmark	Ajax desktop / DLA /Filter	W/H	Germany	1	May-06
Qype	Partech , Advent Ventures	Local search services	W/H	Germany	1	Aug-06
Spreadshirt	Accel Partners	Consumers design  T-shirts,	W/H	Germany	1	Jun-06
Wazup	Innovacom & Wellington Partners	Game Search Engine	5.20531	Germany	1	Dec-06
Criteo	Elaia, AGF Private Equity	Recommendation engine	2	France	1	Apr-06
Dailymotion	Atlas Venture , Partech	Euro YouTube	4.77	France	1	Aug-06
Eyeka	DN Capital , Ventech	Mobile video and image market	2.72	France	1	Feb-06
Kewego	Banexi Ventures Partners	UGC Video	3.4	France	1	Apr-06
Olfo	Members-only e-commerce	Edmond de Rothschild, OTC Asset Man.	2.1	France	1	Dec-06
Viaduc	AGF Private Equity , Ventech	Viadeo.com is social networking for  professionals	3.4	France	1	Jun-06
vPod.tv	Innovacom, Angels	Online video	2.5	France	1	May-06
W2.Media	Angels	www.Vozavi.com "consumer expert" decision-making	0.8	France	1	May-06
Wikio	Loic Le Meur, Martin Varsavsky, Pierre Chappaz, Jeff Clavier	User managed news search engine	W/H	France	1	Jun-06
Yoono	Social Bookmarking	AGF Private Equity	1.02	France	1	Aug-06
Igglo	Benchmark , Taivas	UGC Real estate	8.51	Finland	1	Oct-06
Quintura	Mangrove , OpenView	Visual Search	W/H	Europe	1	Nov-06
Joost	Not disclosed	Non-linear webTV	W/H	Europe	1	N/D
Zyb	Nordic Venture Partners	MobilePhone backup	0.6	Denmark	1	Oct-06

A vintage year for investing. I am honoured to be working with the entrepreneurs who are driving it. Of course, the real test for us all comes of course at exit….

Methods. This has been a mixture of old fashioned primary research, desk research and most significantly help from readers: thanks to all those who posted or wrote with deal deals, many of which were missed by the mainstream deal databases.

*These deals have had Seed and First rounds in 2006 and total funding has been summed in the table

Reference sources used: Venture Source, CalibreOne research

Reevoo is a trust filter for the web

Reevoo today announces a $5mn Series A fundraising* from Eden Ventures and a raft of experience angels. There have been a few questions about what is this investment  is all about.

 
Let me give a view.

 
A massive problem with the web is knowing who and what to trust. Not only because of the growth of dodgy review sites and spoof blogs / affiliates but also because “kosher” ecommerce sites themselves want to increase the levels of trust consumers place in them. They have worked out that higher online trust = higher online conversion.

Reevoo is solving this problem with a two pronged attack;

 
1) The ReevooMark product is a service to collect reviews from retailer’s customers who have already bought goods. ReevooMark aggregates these reviews around products and serves these reviews back to the retailers sites. (see Dixons , Currys , Jessops etc ).

 
2)Reevoo.com, which is still very much in Beta, also provides a destination for consumers to read these reviews to help choose what to buy. Price comparison engines were the first generation in helping consumer WHERE to buy.

Reevoo provides a trust filter to help consumers work out WHAT to buy.

I have blogged before about how much value there is in delivering what the consumer wants without them having to ask for it. For me this remains an area of white space on the web and one where VCs have been making their bets this year. Last.fm does exactly the same thing for music.

The other exciting thing is that if Reevoo can dominate the part of the purchase process that focuses on WHAT to buy rather than where to buy it will become an enormously powerful platform for shaping purchase decisions.  Ben Tompkins is the General Partner at Eden Ventures who I negotiated the
Reevoo investment with. In his previously life at Broadview Ben was the guy who sold Kelkoo to Yahoo  for €475 million. Ben understands what the value an investment in a second generation site like Reevoo could yield.

 
*First Capital advised Reevoo on this fundraising.

2006 Venture Capital Investment into European Web companies

2006 Internet and media investments

It’s a little premature to be releasing any numbers, but I have been taking some time to look over the deals done so far this year at Seed and Series A Level.

As I noted when First Capital ran the web2.0 event last year, I was convinced that we would see not only more deals into European web companies but also a significant up-tick in the amount invested. Just from the list of companies noted below, you can see we’re already far ahead of last year’s numbers.

 
The list is interesting as it shows new investors to Europe (who’d have thought we’d see Sequoia active here?), some other investors appear to have woken up. The type of companies are fascinating too: Far more online-offline models such as Moo and Spreadshirt, some of the filter technologies that excite me so much like Netvibes, PageFlakes and Last.fm, and also a new breed of online media properties like the wonderfully named DailyMotion.

Worryingly I also see a few directly competitive investments from competing VC firms… feels like 2000 again.

Dear reader, this is not yet a complete list, and I need your help. Which have I missed or got wrong? I know are few are missing but they not closed yet ;) but there's others I will have just overlooked.

Send me mails if I’ve missed stuff off (remember only seed and first rounds, only European companies) and I will publish the complete list with investment amounts at the end of the year.
 

2006 Consumer internet and media investments

Seed and Series A Level

The story so far...

Islandoos and don'ts for sucessful social software

This Tuesday's FT devoted half of page three to Mint Digital's Bloombox product implemented as Islandoo (disclaimer: I have a personal interest in Mint). 

They were right to: BloomBox is more than an off-the-shelf YouTube.  Let me tell you more.

Bloombox is essentially a white label social network and rich media tagging system that enables enterprises, media companies and brands to recruit and retain customers or serve employees.  It achieves this by creating an interface to information that is both intuitive and social. 

Mint Digital have got it right on a number of levels.  Their implementation for RDF is called Islandoo which is a social network set up specifically to recruit contestants and viewers of a reality tv show called Shipwrecked.

The numbers are remarkable: "since its launch (6 weeks ago) it has garnered almost 18,00 profiles, 1.5m comments from users and almost 10m page views" (some other wonderful quotes here and here)

Yet many groups have failed with similar attempts. The worst forays into company sponsored social  networks have been dismal. The biggest failure was Pepsi who made a Youtube-esque site during the world cup.  A worldwide multi-million on-can promotion encouraged customers to upload their own versions of the Pepsi TV ad was a dismal failure: a worldwide campaign yielded only 23 videos. The majority of which were from the same family in Romania!

So what is the secret to Mint Digital and islandoo's success? The secret is in the incentivization and execution of the software.

1) Incentivization . Mint Digital have spent time and money to work out the formula of how to make web2.0 successful for an enterprise.  It conducted research on how people use myspace by studying a range of 12 - 25 year olds online. The results were fascinating (also here).  They found female users spent most of their time messaging other buddies and making their sites look pretty.  Male users spent most of their time checking out photos of pretty girls.

Mint has designed the user journey and incentives of islandoo so that within the first day of signing up, and male will get about 10 pings from attractive females asking for their votes: a win win scenario.

2) Execution. Bloombox is more user friendly, prettier and has more user focussed functionality than anything else out there.  The platform has been coded by the team who made the origional Real Player. Cameron Price, the CTO, was part of the original team behind the original Microsoft Media Player.

I think one of the most exciting aspects for Bloombox is the transferability of this technology to any industry that needs to recruit or retain customers. Or educate a work force.  The challenge here is not only making a site that people like using, but also a site that incentivizes people to use it.  For customers and employees this is more tricky than offering an audition for a tv show, but can be done.

I believe that this could be the next generation of enterprise software.  A lot more on that in forthcoming posts. 

PS. I have been taking a lot of stick recently on my poor post rate. (No match to the prolific rates of Fred, Nic or Max). The good news is that I have been incredibly busy working on two deals.  Delighted to say we did announce the sale of Smart421 to Kingston Communications.  Smart421 are leaders in managed services of applications to enterprises, which many argue is the first manifestation of a larger movement in enterprise 2.0 (arrrgghh: another buzzwood...).

PPS.  Delighted to see that VCs don't need to ask entrepreneurs "who else are you talking to?", nowadays they just need to check Flickr.

User Generated Content

Just a quick note to say looking forward to seeing many of you this week at my favourite media technology software business MintDigital's UGC event.

Just like the rest of the VC community, we are seeing a big up tick in UGC businesses.

Just as I predicted ;)

I have been looking at this value chain in detail ever since the BBC interview, and I am going to follow up with a couple of entries post-event.

PS. For those who've not got the invitaiton from me, forgive me, and do ping me if you'd like to be on the list.

Last.fm and Index Ventures finally announced

Glad the news is finally out there.  If nothing else it'll mean I don’t have to keep politely replying to emails asking me who did the deal.

Delighted to read Martin Stiksel’s comments that the company wasn’t “actively looking” for VC. 
I often tell entrepreneur’s that the best time to run an investment round (at least from the perspective of negotiating the right deal) is when you don’t actually need the money....

Anyway, now the hard-work really starts for Last.fm, and I’m looking forward to seeing how they roll it out.

Fotenote:  I am now back in the land of living as we announced  the sale of venture backed software company AIM Group to Computer Software Group plc .  I’m now back and busy meeting lots of great British Entrepreneurs  and I’m looking forward to writing up a few thoughts that have been germinating over the last month or two…

2005 Venture Capital Web 2.0 investment statistics: US entrepreneurs raise ten times more than Europe

We have used the traditionally-quiet holiday period to keep ourselves very busy running some research on venture capital investment into Web2.0* companies.

Why did I want to run these numbers?

It is obvious to me that there is a high interest-level amongst European VCs in the sector, yet I was seeing a very low level of Web2.0 “done deals” in VC portfolios and on the deal sheets.

Furthermore, when we ran our Web 2.0 European event, we noted an under-supply of European entrepreneurs with compelling Web2.0 businesses.

So I was expecting the stats to show low levels of investment into Web2.0 companies in European compared to the US. However the discrepancy was even greater than I had expected.

In 2005, US-based Web2.0 companies reported raising £200mn whilst European businesses raised just £24mn.

Both geographies had similar (ish) proportions of investment at the first round: 59% of US deals were first rounds compared to 47% in Europe.  Tellingly however, there was a skew in Europe towards earlier stage deals: seed rounds constituted 13% of all activity in Europe compared to 6% of deals in USA.

Be warned however, because I think it’s too early to start drawing any harsh conclusions on European entrepreneurs or VCs.

Frequently, we see European VC software investment trends trailing the US by anywhere from 3 – 12 months.  I’m pretty excited by the range of European Web2.0 entrepreneurs that I’m meeting today. I also know there are some interesting deals currently “in process” at many VC houses.  I’m looking forward to seeing the European numbers catch-up.

* A quick word on methodology: “Europe” refers to West and East Europe and also Israel. Web2.0 is defined as company fitting the Tim O’Reilly description (see previous posts). Data was sourced by primary research, press releases, techcrunch, company calls and the VentureSource data base. 

Why is last.fm so exciting?

The VC interest in last.fm continues unabated.  I have been asked by a few VCs whether this is just a feeding frenzy created by Yahoo and Google’s current shopping spree OR if it’s a sustainable business on its own.

I think it's very sustainable and here’s why.

last.fm is valuable because it provides a compelling mechanism for consumers to find tunes that they like and therefore more likely to buy.

True, but more importantly

Last.fm is valuable because, by using its collaborative filtering mechanism, it has grabbed an early dominance as the platform for intermediating between what consumers and the music they want.  Clay Shirky tells us why this could be so valuable:

"The (music label) industry harvests the aggregate taste of music lovers and sells it back to us as popularity, without offering anyone the chance to be heard without their approval… The industry's judgment, not ours, still determines the entire domain in which any collaborative filtering will subsequently operate. A working 'publish, then filter' system that used our collective judgment to sort new music before it gets played on the radio or sold at the record store would be a revolution." 

True, but also (and potentially of most significance)

last.fm is valuable because it could be a mechanism for consumers to find the stuff that’s most valuable to them (not just music). Which means it could be the next generation of search (and I'm not going to bang on why that is valuable).

Let me take a few more paragraphs to explain this point about "next generation search" (clue: it isn't about people searching for stuff but about people finding stuff).

Because media production is cheaper and more atomised, attention from consumers is scarcer and consequently more valuable.  This means that there is greater value ascribed to not only low cost production and distribution but also search (explained in phenomenal detail by Umair Haque).

I use “search” here as a very loose term: it refers to something more than just Google.  It is about the way that consumers are fed (or discover) media most efficiently which is uber-relevant to them.  This is about a number of things: tagging (del.icio.us),  multimedia analysis (Riya. Omniperception, Blinkx), aggregation etc etc.

There is enormous value in delivering what the consumer wants without them asking for it.

With this type of smart aggregation,  predicition is the key (this is composed of user profiling, collaborative filters, community recommendations, similarity & difference filters).  last.fm has all of these.

So I believe last.fm does have stand-alone value.

It has the opportunity to win short term advantage. And in the longer term it can win big.

Web2.0 and venture capital

We ran a cracking event on Web2.0 on 18th November. Here are the notes:

 

 

My Introduction

 

What

 

My definition is that web2.0 is a collection of new technologies which are offered over the web which make possible a new set of products, services and business models.

That is pretty broad.

Tim O’Reilly goes into far more detail and comes up with 7 core competencies that define a 2.0.

The important thing, I think, is that there is unquestionably disruption.

Given this disruption, given the confusion and pace of change there is opportunity And there is innovation. And where there is opportunity and innovation there is, inevitably, venture capital.

 

Why now

 

Two reasons why; technical and cultural.

 

1) Technical innovations are enabling this market.

According to Neilsen/Netratings today over 60% of US homes have broadband connections. In six months times this is expected to be around 75%.

Bandwidth is no longer a problem for many web based services, and will become less of a barrier as time goes on.

2) Not only are the pipes bigger but there are more of them. There is now a ubiquity of access to IP networks from Starbucks to tiny mobile phones in your daughter's pocket. Internet protocol is everywhere.

3) We also have a brace of more granular technical enablers (many of which have been around for while) which are today being exploited to do new things:

• RSS news feed pushing user generated content,

• Ajax

  pushing web software & mashups,
• P2P lowering distribution costs
• Open-source & LAMP is pushing entrepreneurs to deliver value beyond commodity software.

 

Culturally

 

Another way to answer the question "Why now"is to look at what has gone before. The first wave of dotcom companies have been useful for a number of reasons.

These companies have experimented with hundreds of different business models. This means that today, both large corporates and entrepreneurs have a much better understanding of what the value chain is, and where they can sit within it.

We also have today an educated user-base. The dot coms spent lots to time and money promoting to both consumers and businesses. This has lead to the mass adoption of the web.

This brings us to the question of

 

Who?

 

My nephew is an internet power user. He is twelve years old. I have seen him concurrently listening to podcasts, watching web video and sending IMs all whilst copying his homework from the web.

My father thinks that the internet is what you get when you look at the MSN homepage.

Both search for, compare and buy products over the web. Both users are valuable.

 

When?

 

So, when does this new wave of technology collide with this hungry base of users?

 

It is happening now.

 

The evidence can be seen in current web economics:

1) Web advertising market share is predicted to be 6.9% in 2007 up from 1.2% in 2000 and at the expense of TV and press. (According to stats from Zenith Optimedia)

http://www.businessweek.com/magazine/content/05_47/b3960075.htm

 

2) The long tail of consumer demand is real. The web is one big low-cost route to market. This is why we have Bob Young: the founder of Red Hat software; leaving Red Hat and to set up Lulu, a long-tail publishing technology business.

 

3) Finally many entrepreneurs I talk to are telling me they no longer want, no longer need venture capital

Entrepreneurs are today launching web-businesses that have:

• a very low initial capital cost,

• a zero cost of customer acquisition,

• which are cash flow positive from day one or two

This means that VC money is a nice to have rather than a must have.

Yet these businesses are still very high growth.

 

How much?

 

Does the size of the market justify Venture Capital investment?

 

The analyst groups are still feeling their way around sizing this market. A better way of justifying an investment decision is to look at exits and ask: Do they justify VC investment?

 

The short answer is yes.

 

There are some very healthy early signs of web 2.0 exits.

MySpace. ($580mn Newscorp.)

ITV (£140mn Friends Re-United 28 times earnings).

 

Finally there’s also a business called Skype: one the best things to ever happen to European Venture Capital.

 

Skype was classic web2.0: using the ubiquity of IP, broadband, adding some clever technology into the mix and leveraging these to do something new.

Selected web based businesses are clearly making money. The challenge for VCs is to answer which ones?

 

 

John Battelle

Chairman of Federated Media publishing, Founder of Wired and industry Standard, Author of “The Search”.

 

Version 1.0 was very long on vision. Between 1995 & 2000 there was more funding and public funding than the market was ready for. Today the market is now ready for Web 2.0. Why?

1) Large amounts of money dedicated to research and development.

2) Much more opportunities and profits now, than in the late 90s.

3) In the early 90s, many believed the war was over who owned the window into the web, but the value lies in what is in the window and service and application that each user chooses to use.

 

The rise of platform sites e.g. Google, Amazon, Yahoo, eBay. They guys let other people build their business for them.

 

General principles of web 2.0?

 

1) Web is a platform where you can access web services, which are not controlled by one company.

 

2) Architecture of participation: whereby you watch what your customers do, encourage them to do it more; and figure out ways to let them build your business; e.g. Amazon’s recommendation system. All successful Web 2.0 businesses in one way or another figure out how to get their customers to build their business.

 

3) Innovation in assembly: Much is free on the Web. The value lies in how you package it, put it together, and deliver it. In Web 2.0 business innovation and assembly are key.

 

4) Lightweight business models: Businesses can be set up cheaply now using open source software and leveraging contract relationships e.g. Boing Boing a blog, has over 2 million readers & an overhead of £1000 a month, setting up such websites in the 90’s may have cost millions

 

5) Power of the tail: there are many opportunities in leveraging down the tail. Content providers can find bliss & an audience in the small, and make money without having to reach the head (e.g. Adsense is an excellent example of harnessing the tail, matching lots of advertisers and buyers using advanced technology).

 

6) Search rules: search is important in the economy because it drives web 2.0 businesses. The search is driving audiences and that is driving business.

There is still a significant gap between web advertising spending and web usage; but the money is gradually moving to where the audiences are.

Content is king: the best content gets found and once it is found, you can build a business around it. Media 2.0= lower barriers to entry so all comes down to who has best content:

Federated Media Publishing has been set up to make blogs profitable: to help leading independent authors turn their publications into sole-proprietor media businesses, at the same time providing media buyers with a scalable mechanism by which they can tap the audience loyalty and engagement that are fostered by the best blogs.

 

Judy Gibbons

Venture Partner at Accel. Non Exec Director of O2

 

Judy highlighted a number of key recent trends which she believes characterise “Web 2.0” and lead to opportunities for innovation:

 

Broadband penetration  The Internet is now constantly available and has become an intrinsic part of our lives. Broadband has also facilitated the “always-on” applications and enabled a new breed of applications (e.g. Instant Messaging). Users have moved from a transactional relationship with the internet, to an interactive relationship.

 

User Power: if someone doesn’t like you product or service, they are one click away from finding another one. There is now a “Darwinian” element to success on the internet: it is a “survival of the fittest” in terms of content provision; If your product is good it will get engagement, if its not good you will find out quickly.

 

Democracy. Extensive content coupled with online communities and the power of viral marketing mean that success on the internet now is democratic: users choose what they want, and so the key to success is to provide the best content.

 

Evolving Business Models: none of these ideas are new, people came up with them 5 years ago, the problem was they couldn’t build businesses out of them then as it was too costly, and you couldn’t get any revenue, whereas the advertising has changed this now. Huge amount from big advertisers around creating relationships online.

 

Less is more: a levelling of the playing field, the democratisation of participation. The barriers to entry are low, and if you are deeply connected in your niche area, getting constant feedback loops, allowing you to constantly refine and upgrade your product is a huge advantage over larger organisations, which have long product development cycles.

 

More exit options: large organisations cannot innovate at the speed of entrepreneurs. There will be a massive appetite from companies like Yahoo and Cisco to develop a core competence in acquisition and incubation.

 

Range of devices: People now depend on and are “addicted” to the internet in so many areas of their life, and want access everywhere they go: this presents massive opportunities with mobile internet people want the internet on the phone. While many operators have invested in their own ‘walled and semi-walled gardens’ for internet content, higher speed browsing on more capable handsets is likely to demand for access to the broader Internet.

The forces of openness from the PC internet are so overwhelming, that fairly quickly, one by one there will be an embracing of new open model, as the internet comes to mobile device. The paradigms of the value of the Internet in a mobile device are different, people will want to use it in a different way i.e. personalisation and location, so therefore there will be fantastic opportunities for start-ups.

 

Simon Levene

Managing director of Corporate Development Yahoo.

 

Amount of M & A has grown rapidly within Yahoo over the past few years

The opportunities with Web 2.0 are enormous, and gives rise to great investment opportunities.

The challenge that investors will face is that companies such as Yahoo are increasingly going to compete with VCs for deals. Historically Yahoo looked at VCs as a partner.

The cost of entry for many Web 2.0 companies is small; you can start businesses using open source software, get to market very quickly and cheaply, and monetize without having a sales force. Such companies capital needs are very modest, so VCs need to invest in companies at early stages, as there may never be a later round.

Its possible to tell whether a company will be successful very early on by looking at the frequency of usage. Such companies are very de-risked. & What Goggle, Yahoo etc have begun to realise that there is no value for them in waiting for month 12 before acquiring a company.

Nick Kingsbury

Global head of software at 3i

Drivers of Web 2.0

We are now in a post-broadband era.

This means that industry is no longer interested in the buying patterns of government defence departments nor enterprises but an increasingly focused on the end consumer. i.e. (typically Chinese female teenagers).

 

Opportunities

It is not one market; as it is not just one market, but thousands of markets.

Security could be potential serious bump in road. We need better security solutions, particularly where there are situations where there is trading going on.

3i have made a series of investments around the area of web 2.0.

 

Issues

US has been tapped into Web 2.0 ahead of

Europe

, but there is no reason why European businesses can’t succeed: just look at Skype. And remember that with the web, Geography does not matter.

The amount of money needed by Web 2.0 businesses are going down; web 2.0 businesses are capital efficient.

Is there a Bubble? There’s a simple way to answer this question: to look at price on the way in & the price on way out. As a VC in

Europe

the pricing of deals in the way in is not at crazy levels. In US, prices often too high. On the Way out: the success stories are getting very high valuations, but there are also numerous other underperformers. So in

US

bubble maybe developing, but not to degree of before because today there are real customers etc.

There were two things wrong with Web 1.0 (which have been solved with Web 2.0)

1) Timing. VCs overestimated how quickly it would happen. Change/ buying patterns take time. 5-10 not 2 yrs.

2) Impact. In 2000 VCs actually underestimated the impact of the web. . The impact of the technologies which we were looking at then and seeing now, are much more profound than we thought.

Early stage VC being killed by Internet companies?

The Web2.0 event we held last week was a roaring success.

I will be posting a full overview of the presentations as soon as we have done the aggregation, but in the mean time I want to do a few posts on some of the important themes.

 

VC experiencing competition on deals from Yahoo.

Simon Levene at Yahoo gave a careful warning to Venture Capitalists that, if they hadn’t already, they were soon going to be competing for deals against Yahoo!

This links to my experience of many entrepreneurs, who still pre revenue, are asking me for an M&A process rather than VC.

(its not just Yahoo though: could Google also be on the case?)

Simon Levene gave the particular example of Accel being out bid by Yahoo on Flickr, which has been well documented elsewhere.

The more I think about this the more I think it is a quirk of this particular moment in the expansion for web 2.0.

I have raised this with a whole range people and there are two people (who I asked at the recent Silicon Valley comes to Oxford event) who I think are worth citing;

Allan Morgan from Mayfield:

His point was that, like many times before, we are part of a cycle, and right now this is frothy phase where certain coampnies are paying up. This has also lead to the Angels coming out again in a way we’ve not seen since the last bubble.

(Note. The logicial conclusion of this is that Angels see a quick return on the horizon and the company goes for it: remember off a $250k investment it’s pretty easy to turn an impressive IRR in a 12 month window.)

Allan believes there will still be many businesses who want to grow a significant stand alone business and these will always need venture.

Evan Williams founded Blogger and sold it to Google. Now in his second start up, Odeo, he’s raised venture this time around. Why?

Simple really

Because this time “The opportunity was big enough”

It seems some things never change: venture capital is most perfectly suited to entrepreneurs who have a compelling path to a half billion dollar business.

Not a six month flip.