The blog post dejour for those in the startup community (including several VCs) is to discuss an upcoming bubble.  These folks who are mentioning the bubble are those in the software sector, which includes consumer, enterprise and infrastructure.  The cleantech, hardware, and life science sectors are not part of this conversation.

There have been two bubbles in past 10 years, both which I was a witness of.  I’m not going to go into great length describing the two bubbles as there have been plenty of articles written on the topic, but here is a quick summary.

2000-2001 : many VC backed companies did not have the proper financial basis to go IPO, research Pets.com and Webvan for details.  Essentially too much speculation.  This bubble was mainly driven by the valley, VCs, startups and I-bankers.  Rightly or wrongly, a lot of money was invested into enterprise/infrastructure for the potential Y2K bug.  This downturn was exacerbated by 9/11.  Over $100B was invested by VCs in 2000.  NASDAQ dropped from ~5,000 in March 2000 to ~1,500 in September 2001.

2007-2008:  a lot of VC backed companies were raising large Series A rounds of $6M, with not much to show in terms of customer/revenue traction.  Follow on rounds were being done at inflated valuations, $50M+. The stock market tanked, primarily driven by inflated residential real estate prices, which was enabled by loose underwriting guidelines and poorly collateralized investment vehicles.  The difference is that the 2007 market crash was not the fault of tech companies, as it was in 2000-2001.  $32B was invested by VCs in 2007 (compare that to $100B in 2000).  NASDAQ dropped from ~2,800 in October 2007 to ~1,300 in November 2008.

2011?: Folks are saying there will be crash, the problem is that they are not providing specific data points as to why they believe this is going to happen.  What I hear from VCs is “it feels like a bubble is going to happen”.  I also hear, “valuations are too high for Series A deals”.  In 2010, we are on pace for $22B to be invested by VCs (compare that to $32B in 2007 and $100B in 2000).

We are not in a bubble, here is why:

  • Stock market is already depressed, so it will not pop as it did in 2000/2001 and 2007/2008
  • Overall economy continues to be very poor (except for tech) and unemployment is very high (except for tech)
  • There is a lot less supply of VC money.  In 2000 and 2007, there was too much supply of VC dollars.  In 2007, there was roughly $35B invested and 2010 it will likely be $22B.  Many VC firms are going out of business and follow on funds are typically much smaller (ie DFJ $650M to $350M, Menlo $1.2B to $400M, and many more)
  • Angels/Micro-VCs/Super Angels in aggregate equal ~$600M, that is roughly the size of one VC fund
  • Series A/Seed rounds or initial rounds of financing are much smaller.  In 2007, there were ~$6M, now they are ~$1.5M
  • Valuation of Series A/Seed rounds are much lower, In 2007, they were $6M Pre on a $6M raise, so $12M Post.  Now they are $4M Pre on a $1.5M raise, so a $5.5M Post
  • There is a lot of money sitting on the sidelines by startup acquires such as: Apple, Google, Oracle, Amazon, Cisco, Microsoft, HP, etc.  This cash will continue to be used to acquire startup companies 2011 as these large public companies need revenue/product growth, which is what acquired startups provide.

A point of emphasis, some VCs are saying there is going to be Angel/MicroVC/Super Angel bubble.  As I mentioned previously, if you add all these dollars, it is likely to be $600M, which is less than one VC fund.  Lets do that math Floodgate ($75M), SV Angel ($20M), 500 Hats ($30M), OATV ($51M), Lowercase ($8.5M), K9 Ventures ($6M), SofttechVC ($12M), Felicis Ventures ($40M), Harrison Metal (?), Baseline (?),Y Combinator ($8.25M), TechStars ($2.5M), Founder Collective ($40M), IA Ventures ($25M), etc.  The majority of the firms I mentioned have funds, of which many were raised in the past 12 months, so they still have another 12 to 24 months of runway, as most funds are deployed within three years.  In addition to the $500M, lets add another $100M for individual angels, some of who are active on AngelList, so in total $500M + $100M = $600M in the seed/angel category.  The seed rounds also include traditional VCs (funds larger that $100M) such as Sequoia, CRV, Trinity, Redpoint, Polaris, True, Greylock, First Round, Union Square,  etc.   It is difficult to know how much money from these funds are allocated for seed rounds, but it total, I would guess it it close to an additional $500M.  In total we there is $1.1B available for seed rounds ($500M + $100M + $500M).  In the big scheme of things these seed rounds make up a very small part of total VC dollars invested, which will likely be $22B this year. 

There is certainly an argument to be made about the challenges of finding great engineering talent, but that will not result in a bubble occurring.  Yes, there are a lot of incubators that are popping up, if those fail, that will not create bubble, they would be collateral damage.

There are a lot of companies that received seed funding this year who will not be successful, but that is not a definition of a bubble.  These companies are raising much smaller rounds ($1M compared to $6M) and they are lot more capital efficient.  Only a small percentage of startups become successful, this is true now and was true 10, 20 and 30 years ago.  Yes, many of the seed funded startups will not raise a follow on round of financing.  Seed rounds are meant to allow the startup to make a go of their business and if they fail to execute, they will not get additional funding, the next round of funding is never promised in this business.  In addition, there is a great emphasis for startups to get to cash flow positive and that a revenue model must be proven.

In summary, 2011 will be a good year for startups who are raising seed rounds, there is sufficient cash available, so go get it!

Sites that provided some of the data I used for this post:




Is the iPad a game changer?

So, I’m writing this blog post while flying on Virgin Atlantic, going to London for a week.  Given that I’m flying from San Francisco, it is going to take 10 hours to reach my destination, so I was thinking of how I was going to keep myself busy, especially since there is no wifi access on my flight.  The answer was to read for most of the time, so I went into one of the stores in the airport and bought 4 magazines to keep me occupied.  I spent at least $20 on these magazines (unlike Sara Palin, I will list what I read 🙂 Fortune, GQ, The Economist, Entrepreneur).  I started reading an interesting article by Fortune called “The Future of Reading” (Josh Quittner, March 2010), talking about how and if, the tablet, specifically the iPad will change journalism.

In the Fortune article, Marc Andreessen, a well-known entrepreneur and investor is quoted “…to think tablets will essentially be the new newspaper or the new book or the new magazine, and that all the economic for the newspapers, magazines, and books will carry forward on the tablet, is really dangerous.”  To a certain degree, I disagree with him and believe the tablet is a step in becoming the new form of consuming books/magazines.  There are several startups (Nanolumens) that are creating really cool flexible/bendable screens and I suspect that in a few years will enable tablets to have a flexible screens, which will bring it one step close to feeling like a magazine.

I’m not an Apple fan boy, but in our household, we have at least 5 Apple devices….maybe I’m an Apple nut, but I really wouldn’t describe myself as one (Steve Jobs in not my god).  In any case, I’ve been thinking about the Apple iPad that is coming out in March/April 2010 and whether it is a device that will be a “game changer”.  For the last few weeks, I’ve down played the importance of the iPad, but as I spend more time thinking about it, I’m starting to realize that is going to be a huge disruption for several reasons.

While there are several readers (Kindle) and many other tablets in the marketplace, none of them have had the proper mix of features to really take off.  Here is what I’m looking for as a consumer in regards to a digital reader or tablet:

1) has to be affordable, needs to be in the $300 range

2) has to be very light, equal to the weight of several magazines or books

3) needs to be able to download magazines and books via wifi

4) actual battery life needs to be at least 12+ hours, preferably 24+ hours

5) touch screen with full color is must

6) purchasing the content needs to be one-click, so my financial info (credit card) needs to be stored

So with those parameters, the Apple iPad is the closest device to fulfilling my needs.  My concern with the iPad is battery life (10 hours) and the cost (starts at $499).  Once I see the iPad in person and speak with several people who own the device, I will make a decision as to whether I buy it or not.

I do believe the iPad will change the market for book/magazine publishers, here is why:

1) the Apple App Store already has many consumers credit card information and allows them do buy digital media instantly.  This is a critical point, as destination sites have a lot of difficulty building trust with consumers regarding their credit card information

2) the App Store doesn’t control the market of supply and demand, meaning that consumer and publishers will decide what the value of content should be.  I just spent $20 on magazines that I will likely throw away at the end of the trip, even though I could benefit from referring back to the content from time to time.  I would prefer to spend $20 on content that I can access at any time.  In addition, the publishers can continue to have a good margin, as there are no printing costs or retail marks ups.  Sure, the App Store will get their piece of the pie, but could be win-win for publishers and Apple

3) the combination of touch screen and HD quality screen, will allow the iPad to closely resemble the physical action of flipping through a magazine of book.  This is an area that the Kindle has not addressed yet.

4) advertising will be in full color and will be very interactive.  If you are a smart advertiser, you know that many magazine publishers currently inflate subscription numbers and there is zero visibility into how many readers are actually looking at your ad.  The iPad will provide the analytics that smart advertisers are looking for

Some of the counter arguments that I’ve heard are:

1) If the iPad is connected to the web, where a lot of content is free, why would I pay for it?  The answer is simple I believe, if the application (app) that is created closely resembles the look and feel of a magazine, consumers will pay for it.  If you haven’t seen what the Sports Illustrated would look like on the iPad check this video out.

2) Why do I want to carry another device?  The point is addressed with one of the comment above; if the product is light, people will carry them, especially when traveling.  The Kindle has shown that consumers will carry another device.  The other related question is battery life and the Kindle does a great job with this as a charge can last a week.  The battery life for the iPad is a big question mark for me as well.

Would love to hear your comments and thoughts on this.  Twitter: @shaig

RIM/Blackberry Killer?

There are many conversations taking place, questioning whether the Google Android Operating System (OS) will be an Apple iPhone killer.  My belief is that iPhone will continue to have the best hardware devices for the next few years  and they will always have one of the best devices in the market.  I think the company that is in biggest jeopardy with the influx of Android devices is RIM (Blackberry) and that the Android will begin taking a lot of U.S. market share from Blackberry.  There are a few reasons why this will take place.

1) Google enterprise applications are getting a lot of traction with large, mid and small enterprises.   The momentum of Google’s relationship with enterprises will allow them to have a direct channel to sell their Android devices, specifically the Nexus One.   Side note: The Nexus One is a 1st generation phone and future versions will provide additional features which will allow them to be in favor with enterprises.  I suspect that future models of the Nexus One will have a physical keyboard, a must have for many enterprise workers.  HTC, who manufactures the Nexus One, has several phones that have a physical keyboard and have touchscreen functionality.

2) The Blackberry App Store is relatively small with 2K applications.  Compare that to the iPhone which has 150K apps and Android with 25K apps.  The Blackberry device is not suitable for heavy usage, primarily due to the form factor of device, screen size, and lack of touch screen functionality.  The Blackberry does a great job for simple tasks such as email and calendar access, but many enterprise workers don’t use much of the other functions on the Blackberry.  I predict that the enterprise workers will demand access to more applications and additional hardware features that Blackberry doesn’t do well.  The lack of Blackberry’s success with their app store, provides an opportunity for Android to step in and become the destination for enterprise mobile applications.

3) IT managers have been reluctant to try the new smartphones for the enterprise.  Blackberry has had a long relationship with IT managers, as the Blackberry has been in existence for 10+ years and the IT managers are used to working with these devices.  It will take several years for Google to build a relationship and trust with IT managers.  Part of the challenge is that IT managers don’t get comfortable with 1st/2nd generations phones where there are still some bugs to be fixed.  Remember, the IT mangers want to reduce the amount of time they spend fixing things, so their perspective is that the Blackberry work fine, so why switch.   IT managers need to have remote access to the devices, something that both Apple and Android are lacking, but are working on providing.  There has also been some security questions as to whether the newer smartphone devices are safe for enterprises.  There are several mobile security startups that will assist IT managers with security issues, such as Lookout and EnMoDa.

Blackberry has 36M subscribers, so they are certainly the leader for enterprise smartphones, but in 2011 I see Google Android OS smartphone getting a large adoption by enterprise IT managers.  I found an article indicating that Gartner predicts the Android will be #2 player in global smartphones by 2012, so this supports my prediction to a certain degree.  Yes, I know that I left out several major mobile players such as MS Windows Mobile, Palm, Symbian/Nokia.  The iPhone is a great consumer device and will get limited traction with large enterprises.

As of now I think it is two-horse race to win the market share of enterprise workers with Blackberry and Android; in the long-term Android wins!

2009: Top Moments in VC / Tech

Given that we are just about at year-end, I wanted to provide a recap of some of the most memorable moments that took place in the venture capital and technology ecosystem.  Below is a list of  the 10 most important events:

First VC backed technology IPO –  OpenTable goes public at $20/share on May 21st http://www.techcrunch.com/2009/05/21/opentable-has-a-healthy-ipo-shares-shoot-up-40-percent-market-cap-hits-600-million/

First VC backed acquisition (above $500M) – Pure Digital acquired by Cisco for $590M – http://gigaom.com/2009/03/19/cisco-to-buy-pure-digital-for-590m/

First VC backed cleantech IPO – A123 goes public at $17/share on September 23rd http://seekingalpha.com/article/160794-a123-s-ipo-could-open-the-floodgates-for-greentech-sector


Khosla Ventures raises $1.1B – in 2009 most VC funds were shrinking in size, yet Khosla Ventures was able to raise $1.1B, this event was a sign that Limited Partners (L.P.s) we actively seeking investment opportunities in the VC sector – September 1st



Tesla Motors receives $465M from the D.O.E – First technology company to receive a loan guaranty – June 23rd http://www.techcrunch.com/2009/06/23/the-government-comes-through-for-tesla-with-a-465-million-loan-for-its-electric-sedan/


Twitter raises a $100M VC round of financing – at a time when there are questions about the consumer internet sector, this funding provided some positive support that $ can be made in the sector – September 25th



NASDAQ closes above 2,000 – August 3rd- the previous time NASDAQ was above 2,000 was September 30, 2008



Dow Jones Industrial Average closes above 10,000 – October 14th – the previous time the Dow was above 10,000 was October 2, 2008



Apple App Store gets more that 100,000 applications published – November 4th – as you may recall the App Store launched on July 10, 2008 and the creation of the iPhone and App Store has created opportunities for both VCs and Startups to make $$



Facebook Connect is widely adopted by 60M users and 80K sites – the utilization of Facebook Connect has allowed startup companies a way to reduce the time / effort for their users to sign up for a particular service



Other memorable moments which didn’t make my top 10:


Canopy Financial is accused of stealing money from investors – December 10th – this serves as a good reminder that investors need to spend more time on diligence and remember their fiduciary responsibilities



legislation that might change the way Carried Interest is taxed



Adoption of the Android Platform



Did I miss any major moments or events? Let me know your thoughts.

Upward Momentum

This week was likely the best for the venture/tech industry in 2009.   I believe this week  (and month) will be marked as a turnaround point as there have been a number of very positive events, which I hope will create some much needed momentum in the industry.

1) Amazon acquired venture backed company, Zappos, for ~$900M.  A great win for their investors, most noteably Sequoia Capital.  Large companies, such as Amazon, typically wait till the market is at the bottom, before acquiring companies, as they are targeting the lowest possible valuation; this signals an important inflection point in the market.

2) 3.5% increase in the stock market in a single week, DOW above 9,093 (high since Nov ’08) and NASDAQ at 1,664 (high since Nov’ 08).  Part of the increase in the stock market, was the positive earnings announcement from Apple; their iPhone product line is growing very rapidly, which is  also helping fuel the companies (some of which are VC backed) who sell their applications in the iTunes AppStore.

3) Several growth stage venture backed companies received follow on rounds of financings, which were led by new investors.  The point that these financings are being led by new investors is critical, as most follow on financings in 2009 have been done by existing investors (aka “inside rounds”).   I can’t recall a week this year with as many new follow on financings as this past week.  The fact that new investors are putting money in to venture backed companies is a sign that things are changing for the better.  Below is a partial list of existing venture backed companies that raised money this week from new investors:

  • eMeter – raised$32M, led by Sequoia Capital
  • Ning – raised $15M from Lightspeed Venture Partners, rumors are the valuation was $750M!!!
  • Kontera – raised $15.5M, led by Sequoia Capital
  • iControl, raised $23M, led by ADT Security Services, Cisco, Comcast Interactive Capital and GE Security
  • 5min – raised $5M, led by Globespan Capital Partners
  • SlideRocket, raised $5M, led by Azure Capital

4) Several reports, such as VentureSource and MoneyTree, have released data this week on the level of venture investments in Q2.  All the data points are indicating that Q1 investments have been surpassed by Q2 investments.  Based on conversations I’m having with the VCs and the volume/pace of VC financings I’m observing, I project that Q3 venture investments will be larger that Q2

5) Lastly, several VC firms have raised new funds this week.  This is significant, as there have been many articles and conversations indicating that the VC business is at risk.  The fact that these firms, specifically, Matrix and Khosla, is a sign the Limited Partners (LPs, those that invested VC funds) continue to believe in the VC business model.

  • Matrix Partners, $600M for two funds, $450M main fund and $150M special opportunity fund
  • Kholsa Ventures, $1B for two funds, $250M early stage and $750M late stage
  • DFJ, closed on $196M of a targeted $400M fund

Note: the data in this post in all publicly available and was mainly sourced via:  Silicontap.com, Techcrunch.com, Venturebeat.com, Yahoo.com

A Presentation Template for Pitching Investors

I recently presented at a SDForum event called “Crafting a Fundable Roadmap“, which included 40+ entrepreneurs and was held in San Francisco.  My presentation was about creating a presentation that is suited for meetings with potential investors.  While there a lot of resources available for creating the “right” pitch presentation, I have my own thoughts as to what should and shouldn’t be included in an initial meeting with an investor.   Given that I meet with hundreds of entrepreneurs a year, I have a sense of what works within a presentation.  The content that I provided is descriptive, so need to summarize that, but wanted to provide a few key takeaways.

  1. More slides does not mean you have a better business, 12 slides in more than enough for an initial presentation
  2. Do not have more than four bullet points (not sentences) in each slide and don’t read the bullet points to the investor (they can read) elaborate/expand on each bullet point
  3. Use visuals when appropriate (customer logos, demo/screen shots,  competitive landscape graphs/charts, financial charts) – no need to flying visuals or complex “builds’
  4. Have passion when presenting, this is your company/idea, you should be excited to present

Investor Presentation Template

The Gold Rush

It is 1849 again, only this time the movement of caravans are not traveling West, but are headed East to Washington D.C.   I’m referring to the passing of the $787B stimulus package aka American Recovery and Reinvestment
Act of 2009 that was recently signed by President Obama.

The NVCA had a conference call last week, on Tuesday 2/17/09, to describe what the effect of the stimulus package is for the VC industry and the call was certainly a positive one.  The good news for startups and VCs is that roughly 8% of the $787B is going to support initiates in the cleantech and life science sectors.  According to the NVCA, the breakdown of the allocated funding is as follows; $37B for cleantech related programs/projects, $19B for healthcare IT, and $5B for science related programs/projects.  To put these figures into perspective, according to the recent PWC/NVCA MoneyTree report, VCs invested $28B in 2008 and of that $4.6B went to energy related companies.   Another figure that put things into perspective, since 2002, VCs have invested a total of $13B in energy related companies, so the stimulus package provides the industry roughly 3X this total amount.

The stimulus package is a huge boost to both startups and VCs in the cleantech sector.  Lets focus on the $37B available for cleantech companies; those that will fair the best are ones that are currently generating revenue and/or are close to production.  In addition, the folks at the NVCA indicated that the companies that have the strongest ties to D.C/DOE will likely move to the front of the line.  Lastly, those that have the most postive impact on job creation will do well, so I suspect that companies in the solar, wind, biofuel, battery/auto, and smartgrid sectors will get most of the allocated funding.  With that in mind, a partial list of privately held venture backed companies that are heading East for some cash and will likely strike gold are (in no particular order):

Solar: BrightSource Energy, Solyndra, Solar City, NanoSolar, SolFocus, Miasole, Fat Spaniel, AVA Solar, CaliSolar, eSolar, Konarka

Battery/Auto: Better Place, A123 Systems, Tesla, Boston Power, Fisker, Deeya

Biofuels: Range Fuels, Mascoma, Amyris, Altra Biofuels, Qteros

Smartgrid: Silver Spring Networks,  Gridpoint

Wind: Northern Power, Southwest Windpower, Wasatch Wind,

Discolsure – I put together this list based on information that has already been made public and is readily available online.

iPhone Review

It took me a while to buy the iPhone as I was on the Verizon network and was waiting for my contract to expire, so I have been anticipating the day I got my phone.   I’ve had my new iPhone for two weeks now and wanted to report some thoughts on the device.

In regards to the dislikes, there are a few:

1.  I’m not able to capture video, which I knew when I bought the phone.  The lack of functionality is really annoying, given that almost every phone currently available allows you to capture video.

2.  you are now allowed to download documents to the phone.  Given that I use my phone to check my work/personal email, which includes documents such as MS Word, MS Excel, MS Powerpoint, and Adobe Reader (PDF), it really limits my productivity by not allowing me to view and edit the documents.

3.  The keyboard continues to be a challenge for me.  I’m used to using devices such as BlackBerry and HTC, which provide a physical keys, which allow me to type very quickly and accurately (compared to the iPhone).  I’ve spoken to iPhone users who have had their device for a while now and they indicate that as time passes, the speed/accuracy increases, we will see.

4.  Battery life is short.  I have been able to manage my settings on the device to allow me to extend the battery life, but the fact is that my device runs out of juice toward late afternoon/evening.

Thoe are the main negative items I have found so far, but I’m sure that a few more challenges might arrive as I use my iPhone a little more.

Rather than discussing the positives items of the actual device, I rather review my top 10 free applications.

  1. Facebook – use this every day to check updates, messages, invites, etc
  2. Twitteriffic – use this every day to update Twitter and Facebook, great tool, which allows me to upload pictures to my tweet
  3. Pageonce – use this almost every day, to check  balances on my bank accounts, credit cards, loans, etc.
  4. Pandora – use this a couple times a week, when I’m in the mood to listen to some music, great service
  5. Touch4 – for some reason I’m addicted to this game, it is old school, but still a lot of fun
  6. 12seconds – given that I don’t have video capture (discussed above), this app allow me to take 3 pictures and layer audio to it.   I guess this is as close as I’m going to be to real video!
  7. Yelp – use this a few times a week to look up restaurants and write reviews
  8. iBART – use this a few tims a week to look up the BART schedule
  9. NYTimes – I use this almost every day, to stay on top of what is happening in the world
  10. Checkers – another old school game, which I really enjoy

I’ve only downloaded a few paid apps, but as I find some that I really like, I’ll report my top 10 paid  apps.  If you know of any “must have” paid apps, please let me know.

2009 StartUp Outlook

So 2008 was a terrible year in a lot of ways, but it was a good year for startups to raise capital, except for the Q4 following the market downturn.  So how will 2009 look like for those looking to raise VC money.

The good news, VCs have raised a lot of money (new funds) the last two years, which means that many of them have sufficient capital to invest in new companies.   The VCs can’t simply stop investing all together, so checks will be written to the “right” companies.  During the last recession in ’01-’03, there was still a significant amount of VC activity; in 2002 over $4B was invested in early stage companies, 2009 should see as much, but I predict it will be more than 2002 .  Other good news, there a lot of qualified unemployed professionals who are seeking work; this is a great time to “cherry pick” some engineers, sales, marketing, finance experts.   Not only is there a breadth of talent available, but they are also willing to work for less than they did in 2008.   Lastly, the costs of starting a business continues to go down, as everyone who is providing a service is a lot more willing to reduce their cost of services.  For those startups that are utilizing hosting services such as Amazon, Rackspace, etc, this area is becoming a lot more competitive and therefore prices should go down for these services as well.

Well that is most of the good news, the bad news; IT, Marketing, Ad budgets are going to continue to get cut.  Consumer spending will be reduced as well.  Companies who need significant revenue to maintain their business, will be in a life or death situation.   For those startups who raised VCs funds in 2007 or 2008, many of them will be out of business in the next 6 months as they will not be able to bring in the revenue needed to keep the lights on and will not get additional funding for their VC investors.  Companies that have excess money to acquire startups, will be in a great situation as there will be plenty of dying companies available, it going to be a buyers market!  This is good news for startups, as there will likely be less competition and there could be an opportunity to buy IP/client base at a heavily reduced prices.   If you are raising VC money, you could factor a portion of amount raised for acquisition purposes (this is not usually in business plans, but now could be a good time to do so).

In regards to specific positive sectors areas that VCs will be looking to invest in will include, mobile, gaming, energy efficiency, life science, and SaaS related companies.

If you look at the mobile sector, the proliferation of smart phones continues as both professionals and consumers are adopting these devices at a rapid pace.   I  just read a blog post this morning about a Blackberry device selling for $20, that is so cheap!!!  The Blackberry Curve is selling for $99, which is a good deal as well for a great phone.  Even the iPhone is going down in price, you can now buy a refurbished iPhone for $99! So kids, teenagers, college students will easily be able to adopt these inexpensive devices.   The adoption of these type of devices, allows startups an additional way to reach their clients and provide an avenue for more revenue.

In regards to gaming, this is an area that continues to increase in adoption and money spent.  The pre-teen and teen generation has always adopted gaming and this will continue.  There are GenX/Y and baby boomers who are gamers, but there is still a substantial percentage the historically have not been interested in gaming, but are not starting to become interested with the help of the Wii, iPhone and internet based casual games.  Although the broader gaming sector is saturated with competitors, there are still areas for companies to make  money.

Cleantech investing reached the peak in 2008 (in terms of dollars invested) and most expect that dollars invested in this sector will continue at a healthy pace.  A lot of the VCs invested in solar and biofuel companies, which accounted for the largest percentage of the invested dollars.   These two sub sectors have been very capital intensive and there have been few companies which have performed as expected;  there will be some consolidation in this sector.  In 2009 a  lot more funds will invested in cleantech companies that are more capital efficient than solar and biofuel. For example, software based cleantech companies will get more interest as well as mobile/PC components that reducing heat and energy consumption, such as battery, antenna, CPU, screen related companies (which ties to the points made regarding the mobile sector).

Life Science and health related companies are not as susceptible to the ups and downs of the economy, as people need to stay healthy.   In addition, the baby boomer generation continues to get older and need more health related services.  I don’t expect to see a big change in VCs dollars in the Life Science sector in 2009.

Lastly, SaaS (Software as a Service) companies will continue to receive VC dollars.  SaaS continues to displace traditional software which was sold based on 3 year contracts, was installed behind the firewall, which caused a lengthy sales cycle.  The adoption of SaaS by large and medium sized companies will continue as traditional software contracts are expiring and are likely to be replaced with companies providing a similar solution but delivered via SaaS.

One area that is going to see a lot less VC money is consumer internet companies.  This sector has seen a lot of investments over the last several years, but has very little meanigful exits (this has been the case for most sectors).  More importantly companies in this sector have failed to monetize their userbase and unless a company has a real revenue model (beside advertising), raising VC money is going to be real tough!!!

The key to raising some money in this economic enviornment is to establish a great team and even more critical now is to have some recurring revenue (assuming you are a software/service company).   The VC money is out there, so go get it!

Monitor110: A Post Mortem

Silicon Alley Insider posted a great post mortem on well funded start up called Monitor110. A few of the key insights for me was that the company received too much money initially and management team was not focused. It is very difficult to find candid stories about failed start ups, so learn as much as you can from other peoples’ failures.