With the digital media market booming, Venture Capitalists are investing in more and more companies and people online every year. We take a look at how these companies are valued by the media and by entrepreneurs, and who the big movers and shakers of the VC world are.
As UK spend on online advertising fast approaches the same amount as that of TV (this year it’s forecast to be worth £3.4billion) online video channels can offer great returns. Last year, $460.5 million was invested in online video startups, nearly double the $266.9million investment in 2006. And if things carry on throughout 2008 as in the first quarter, this year’s spend may double yet again (taken from NewTeeVee.com ).
SUCCESS STORIES
A very current topic of conversation is Facebook – its rapid growth, along with the worth of a company which is constantly changing and expanding, and its ability to find new ways to make money online. Kevin Efrusy, the general partner of Accel Partners, valued Facebook at around $2billion in 2006. That value has since risen to $15billion. But do Facebook and other social networking sites deserve such a high price? Efrusy believes that the revenue-making potential of these sites hasn’t yet been reached, especially with the changes from just a way to keep in touch with your friends, to becoming a distribution channel for branded content. Facebook’s story is highly inspirational, having been founded by Mark Zuckerberg when still a student at Harvard University.
You can find more from Efrusy on CNN .
So you’re an entrepreneur, cradling your newborn company for a $-fat VC to inspect and consider. This is where the all important pitch comes in. The entrepreneurs have put a lot of enthusiasm and love into their idea, while the VC is in it to make money – for themselves and for their investors. Being relatively risk averse, they want to find the safest and most lucrative deal – or an individual which they believe in. Below, we look at a few tips on how to be prepared when pitching to a VC, and what to expect in the boardroom.
Richard Moran, a partner at VC firm Venrock, says that the poker-facing of pitching can be broken down into three responses, all fraught with tension and fear for the entrepreneur:
Enthusiasm : If the VC is excited about the idea and the prospects for the company, the entrepreneur believes the money is sure to come. If the company is funded, hallelujah, but if the money doesn’t come, the entrepreneur feels betrayed and led on — pins in the proverbial VC voodoo doll.
Criticism : When a VC tries to make recommendations or give feedback, it can be like telling the entrepreneur the baby is ugly. Often there is a sense that the VC, who probably doesn’t know much about this business, just criticized the best idea since alligator clips.
Stoicism : If the VC doesn’t say much or react at all, the assumption is that the VC didn’t pay attention and doesn’t care, prompting the entrepreneur to think, “What a waste of time, money and stress.”
(taken from his article on GigaOm )
Though a stressful experience, with a VC in place, it’s then easier to help your baby grow. Our friends over at Player X know this all too well, having only started in 2004, they’re currently one of the UK’s top 20 fastest growing VC backed companies. They develop, publish and distribute games and video across mobile platforms. They recently entered a deal to produce games based on Paramount Pictures’ films, along with being the exclusive aggregator for all Virgin Mobile UK’s games and video content. Though London based, their services are offered in Europe and the US. They are backed by Arts Alliance and Nordic Venture partners.
But the key to a good investment or a successful startup is investing in the right people. We at Flypaper.tv also believe in people first, which is why we choose the very best talent to serve our clients. And this ethos seems to be at the heart of the VC companies, as The Times’ rising stars under 40 article suggests.
We were proud to see our friend Jonathan Goodwin up there - as chairman of Jefferies’ global media investment banking group. Having developed and sold his own media-specialist investment bank, Longacre, to Jefferies in 2007, he has worked on deals such as the £175million sale of Friends Reunited to ITV, and Elisabeth Murdochs’ Shine Productions acquisition of Reveille Productions. Jonathan truly is a big cheese….
You can find more on the Longacre deal here .
WHICH VC?
Remember that ‘shopping’ for VCs is much more than just pitching. This is as much a time for you to find the right partner for your baby as it is for money-men to buy into your concept.
Questions to ask yourselves: Do you get along with their team? Do they share your vision? How hands-on are they? Does the VC have tangible entrepreneurial experience or merely comes from a finance background? Does their portfolio intrigue you for potential synergies down the line? Are they too big to give your project the attention it deserves? Do they have a strong reputation in the industry and can they help bring credibility to your company? Also, ask yourself if you should look for two VCs to get involved simultaneously….A set of VCs is often helpful as it allows for three-way conversations, larger global networks, sharing of risk, complimentary skills and often more cash investment.
Some VCs are more entrepreneurial than others too. A simple browse through various VC websites and you’ll see phrases such as “We are entrepreneurs… who invest our own capital in passionate entrepreneurs with powerful ideas.” (Atomico), “We look for teams that are committed to solving a real problem with a novel approach” (Index Ventures), “OATV is in the business of funding disruptors, innovators, and hackers of the status quo.” (OATV). This should be a good initial indication of the company culture.
So as an online TV startup, which Venture Capitalist should you be talking to? Below we take a look at some of our favourite media oriented VC’s…some are bigger than others, some are more experienced, but they all have unique characteristics that make them stand out….and most of them are flypaper.tv friends! [ Remember this is not an exhaustive list, but there are plenty of resources out there that can help you with your search ].
Atomico are lead by two of the founders from hits such as Kazaa, Skype and Joost. Having grown their own online companies from scratch, they have a real working understanding of entrepreneurial work, and how new companies can reap revenue reward. They’ve invested in companies including Last.fm, Joost, and Heysan!
3i are a world leader in private equity, who each year invest over €2.7bn in people who create, develop, and buy businesses. They’ve been in the market for more than 60 years, so have a pretty strong sense of values, and what they do and don’t like. Companies include: 1-2-3 TV (Germany’s first auction-based home-shopping TV channel); Boomerang TV (who produce entertainment and fiction programs for Spanish national and regional channels); and Sparrowhawk media (who provide female-oriented media in the UK).
Swiss based Index Ventures have recently created a European fund to invest in mature, late stage European startups. So far, the fund has raised over €400million, which will then be split into €20million to €50million investments. They were one of the investors in Skype (before it was sold to Ebay) and Betfair. More can be found about them here .
OATV (or O’Reilly Alphatech Ventures) have been "changing the world by spreading the knowledge of innovators" since 1978. They’ve backed the Chumby (a Wifi device for the consumer market which gives access to other sites’ widgets), and Tripit (an intelligent personal travel organiser).
Eden Ventures invest in digital media, internet and mobile companies across the UK and Ireland. Key companies on their portfolio include Blinkbox (a site which allows you to make a clip of your favourite video, and then send it to a mobile phone or email); and Reevoo (an online database of product reviews by real customers).
Wellington Partners Venture Capital specialise cover Technology and Life Sciences, with specialist areas in online media. They provide key business support and expertise, without getting involved in day to day management (a handy bonus!). Within their portfolio are Xing (social networking for business professionals); and a high-profile acquisition of Alando, which was then sold on to German eBay.
SEB Venture Capital focus on Technology and Health Care, working with products or services which are competitive and sustainable, and which have significant growth potential. One of our favourites from them is ShoZu – the mobile media service which allows for quick, easy exchange of media content from your mobile to the internet.
Benchmark Capital are a very large VC, with a massive portfolio. Their website’s worth checking out just to see how many companies they work with! Their portfolio can be gawped at here . Many successes – too many to count!
Esprit Capital believe that their enthusiasm and dedication to their clients are what makes them stand out. And that passion comes through in the quirky LoveFilm online DVD rental company; and Wayn - the world’s largest travel and lifestyle social network.
Accel have offices in Silicon Valley, London and China, and deal with a whole gaggle of companies which we often feature here, on Flypaper.tv. Their company motto is “To be first. First to see the opportunity, first to define a category, and first to transform the industry.” And this reflected in their portfolio, including Brightcove, Facebook, Bit Torrent, and Real Networks.
MK Capital have a strong focus on digital media, and have just acquired Kontiki from VeriSign. To read more about the deal, go here .
ADVICE TO ENTREPRENEURS
But before pitching your idea to VC’s or Other Investors, make sure you have the right idea. Flypaper.tv has a few basic suggestions of what will help shape your thoughts and strategies forward…
Travel The World – know your industry and what’s going in it, on a global scale. How do services and technology differ between countries? How does the investment mentality differ?
Be The First To Know – Everything . Keep yourself informed on the latest news, acquisitions, statistics. Read news feeds and blogs (Flypaper.tv, ReadWriteWeb, and more). Don’t just agree with everything you read…respond to it! Watch out for long-term trends and anticipate their impact, do they create a unique consumer behaviour?
Network Know the key people you need to know. Whether financiers, technology partners, bloggers, products, firms… attend industry conferences and partner with companies that can help you build your dream idea.
Make it Scalable Does your concept reveal an important consumer need? What’s the growth potential of your idea? If niche, how large is that niche market? Could it snowball as a project? Will the company expand?
The Right Idea, The Right Team Investors are hard-pressed to put their money into an idea that’s already been developed elsewhere and better. So take your idea one notch up, think out of the box and find the right team to carry your vision forward. (We are amazed at how often we see great ideas go down the drain due to poor management decisions!) Investors don’t want arrogant ‘I can do it all’ entrepreneurs – they want to see strong confidence, rational thinking, and a clear vision that’s communicated effectively through the company.
Have an idea and need help developing it or taking it to the market? Flypaper.tv can help, click here [ LINK TO RD LAB ]
So who do you think are the top VC’s we should be keeping an eye on? And who do you think are the top entrepreneurs? Are you one of them? Any lessons you’ve learned during the investment process? We’d love to hear your thoughts.
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May 12th, 2008 at 8:01 am
Latest companies to win large VC funding, yay for Veodia! and Fora.TV!
May 13th, 2008 at 8:04 am
Other recent news includes Tom Dempsey, the veteran negotiator with a strong TV background, being named as the director of digital investment for GroupM North America. To read more, check out the article on TV Week.
May 14th, 2008 at 1:58 am
And yet another success story, as Facebook strategy game, Warbook, has just received $15million in round A funding. Congratulations!
June 30th, 2008 at 2:23 am
Here’s an interesting article from TechCrunch on what VC’s are looking for, in particular, stuctural change.
August 12th, 2008 at 3:25 pm
With the economy is such a grim state, you’d expect Angel investors (companies who invest in satrtups) would be even more wary of where and how they place their money. However, an article on GigOm suggests that they’re still investing, putting mor emoney into projects they’re already supporting, and conglomerating money with other investors. You can read more, here:
http://gigaom.com/2008/08/08/in-a-down-economy-few-angels-fly-away/
January 26th, 2009 at 6:37 pm
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