The VC Outlook - Report from June 24 Event

Charlie Federman, Crossbar Capital • Jeanne Sullivan, Co-Chair, StarVest • Owen Davis, NYC Seed • Ben Boissevain, Agile Equity • F. Morgan Rodd, Milestone Ventures

We usually do a VC Outlook iBreakfast once or perhaps twice a year – and they are good. But somehow the June 24th event was special in an extraordinary way.

Maybe it’s the strange times we are in. People really needed to understand where we are headed and so Investors, by telling us where they are placing their bets – are also giving us a view into the future.

It is also a tricky time because, on the one hand, there appears to be a rising tide of private equity. On the other hand, we see a lot of entrepreneurs but for all their enthusiasm, also lack a vision about the future. Most of all, entrepreneurs may not be thinking of what the Venture marketplace wants – only what they want to do.

We understand that deals have become cheaper and investors can cherry-pick them in a way they may not have been able to do in the past. But what are they looking for?

So this iBreakfast was a wake-up call to “game” the Venture marketplace – getting your plan in line with what the market wants instead of wondering what’s wrong with the market…...

According this iBreakfast - here is the lay of the land:

Most of the exits are closed – the IPO market is all but dead, few investors speak of building a great profitable company in the old enterprise-building sense of the word. M&A is the main exit. Fortunately, many companies have strong balance sheets and after having laid off staff, they are finding that buying start-ups is the cheapest form of R&D. Great. Perhaps even better, foreign companies too, are eyeing the US market and they will often pay a premium if they feel they can get market entry.

So what are investors looking for? According to Jeanne Sullivan, the companies they look for include tech-enabled service businesses, platforms and any high perceived value service that once required custom tailoring, that can be delivered in a mass format is in demand.

Charlie Federman of Crossbar, a noted early stage investor looks for the first new idea in a marketplace. First to market is big deal and if properly executed, usually carries over in the long term. He especially likes ones that "export deflation" - i.e. offer a really low-cost alternative to a current business under price pressure. More importly, he looks for entrepreneurs who can adapt, since most start-ups find their real opportunity later. The business they end up is never quite what they started with. Somewhere, they’re going to have to take a left turn. Will they be ready to respond to that…..?

Owen Davis has analyzed various investment deals and has laid out a kind of roadmap that would be an invaluable guide for an entrepreneur to determine which sector has the highest probability of raising capital in the New York area. Hint: social media and communities highest pitch topic – least invested in.

(Note to Entrepreneurs: check back with us for the best bets.)

Morgan Rodd noted that Milestone Ventures was increasingly interested in tech-enabled medical services.

Based on the surge of investor/entrepreneurial interest we will be producing a new series of Start-Up bootcamps, business and deal structure sessions and more investor meetings.

View Presentations
Ben Boissevain - Agile Equity

Media's Act II - Report from Digital Downtown

Media’s Act II at the Digital Downtown Conference at the CEA Lineshow in NY

Alan Brody, ViziPress (and the iBreakfast); Debbie Steirs, HarperStudio; Eric Frank, Flatworld Knowledge; Brad Inman, Vook.com

Last week I joined 3 other publishers to talk about the next phase in publishing at a consumer electronics road show in New York. We did something unusual – we talked about the way media content needs to change – and we showed eye-opening examples.

Clearly, Consumer Electronics guys are mostly interested in TV and mobile apps. Reading is not their highest priority - but then you never where convergence is going take you.

So here we talked about eBooks, mobile reading devices, the digitization of books generally but, more importantly what the title of this panel was all about: the change in media – its Act II. How content is about to become something different because the Media has changed - and so have we.

This phrase, Media's Act II, came from Google’s CEO Eric Schmidt at the American Newspapers Association convention earlier this year. He informed the execs, nervously watching their papers edge out of existence, that they had done a great first Act in the 90’s by going online but now they needed an Act II.

So what was Act I? I argue that it was what we used to call, in an earlier era, “shovelware” – they shoveled the contents of a newspaper online and threw in a few bells and whistles – a little search, a little feedback, a slide or two and a place to click. But for the most part, you read just like you did in print but with the inconvenience of a monitor.

Shouldn’t the computer enhance the reading experience – either make it faster, better or something else? And now, with mobile (why we were at the Consumer Electronics space), something more suited for on-the-go reading?

We showed 4 new publishig models, each unique but each complimentary in a way that probably defined the 4 corners of this coming universe: We showed books that are way shorter (ViziPress), way richer (Vook.com), way more social media involved (HarperStudio) and way more adaptable to higher educational needs (Flatworld Knowledge).

Vook.com is about taking you into the world of a book – using video, interviews, multimedia and so on. If you love Sherlock Holmes, you’re in heaven. They hope that every great author will bring you into this afterworld of their creative space. If you’re the kind of person who watches the extras on your movie DVDs then you’re going to want this for your favorite books. They even hope you will pay a little extra for the privilege and publishers are interested in - not just the book - but the book world.

ViziPress, my creation, is about visual condensations – a kind of visual "Cliff Notes" – of popular business books. If you are lacking in time we can tell you what a book is about in around 3 minutes - and do it in a profound a memorable way. We add music because it makes the process a lot more digestible (according to mysterious research) and we think their world will demand this for every book in existence. Interestingly, it doesn’t kill books - it excites interest in books that people may have otherwise ignored. It also helps that we can cite Albert Einstein as using visualization in all his theorizing (remember the one about riding next to a light beam?) and that we have the best-selling "What Would Google Do?" as an example of a visual summary.

HarperStudios is a new kind of publishing arm of HarperCollins – like Saturn was for GM but, we hope, with all the upside. Their idea is to create a new kind of relationship with authors and booksellers alike – something like the 360-degree relationship record labels are establishing now with their artists. They look for authors to share the burden on marketing - especially through social media and they actively seek out authors who have already developed major online followings (e.g. Gary Vaynerchck from the Wine Library). Instead of high advances and low royalties, they offer low advances and high royalties hoping the author is more motivated to make waves. And they don’t take returns, so they force the booksellers to be more judicious in how they order and place the books. All told, they represent the newer, leaner and more entrepreneurial style of publishing.

Flatworld Knowledge is a start-up comprised of savvy college textbook people who have similarly reinvented their space but with even more twists – they have added a kind of modified Wiki. They hire the top educators to create college textbooks, enable the professors to customize the books for their own courses and then they give it away online. What students pay for is the on demand version of the book - printed for them at the college bookstore - but at much, much lower prices than typical textbooks. They also sell multimedia course material. As their investor explained to me, they plan to take a declining $10bn industry and turn it into a high growth $1bn industry – with Flatworld leading the growth.

One thing is clear, the book as we know it – this final and only product of the writer’s creative process is about to become something quite different – an ongoing conversation delivered over many media and probably on the go…..

UPDATE Google is about to launch its version of news condensation with Flipper. Look out for this market to take off!

iPhone Apps - Report from May Mobile iBreakfast

iPhone & Mobile Apps

As cell phone users increasingly turn to smart phones – how important is it to offer a mobile App? It is cheap ($99 registration fee with Apple), relatively easy to develop and distribution is assured. However, with 35,000 apps out there, it is tough to stand out from the crowd.

THE APP LOTTERY
If you are lucky, like iBird (see NY Sunday Times) and Apple thinks you can really showcase the iPhone - they will give you millions of dollars of free advertising. A little less lucky - and you become the featured selection and so on. But this is a kind of lottery, most developers have to think about the long hard slog and such time-tested techniques as piggy-backing on other platforms.

AD SUPPORTED
According to Eric Litman, whose company, Medialets helps companies track and optimize the use of apps, having a mobile app may be a necessity of doing business. Instead of selling them though, many will become ad-supported. Think mobile widgets…..

BUSINESS TRANSFORMATION – GOING MOBILE
More significantly, as mobile increasingly becomes a business platform as well as a lifestyle utility, the applications will become useful extensions to existing businesses – whether it is mobile sales people on a contact- and order-management system, or field engineers using specialized software to solve technical problems. These will be more than cool apps - they will be the future of the workforce. Any business that can put you in the field, will. And they can manage their workforce through control software - and stop paying rent on your cubicle.

MANY SMART PLATFORMS
While Apple is leading the mobile App charge because of the iPhone’s extraordinary range, power and graphics, the other platforms are already in the game and are likely to follow their example. In the case of Alex Muller’s Slifter, local shopping has been an important driver. Since his company began developing in 2007, having reached out to many platforms and worked with many telcos - they are mindful of the developments from Google’s Android, Nokia, Palm Blackberry and that dark horse in the race, Microsoft. Apple is hot but still has only 26% of the Smartphone marketplace.

No one expects Microsoft to lay low for long. When they wake up to this marketplace - it could spell opportunity for developers since Microsoft has a way of spending itself to the top.

NEW WORLD TRADING PLATFORM
Mobile use is not only likely to grow, but it is poised to become a ubiquitous platform: it is a computer that happens to be a phone. In many parts of Europe, where the telco’s charges are less onerous, it is a kind of charge card. In the 3rd world, especially Africa, phone usage has grown in 15 years from a few million landlines to over 50 million cell phone users with generally high quality service. As smart phones enter the picture they have the potential to become the standard trading platform that could transcend national borders and economic systems. Ditto for many parts of Latin America and Asia. The new versions of SmartPhones (iPhone 3.0) will greatly enhance the eCommerce possibilities of this platform.

MULTIMEDIA TRAINING AND SUPPORT
The specifics of Ken Engels' Curious Brain, a guitar teaching tool that uses the sound and graphics of the iPhone in an extraordinary way – think iChord instead of iBird - make it clear that the iPhone's potential to train, inform and empower will be tapped worldwide.

That may just be the beginning - Version 3 of the iPhone adds the ability to sell within applications. This way users of an app – say a training store - can buy more lessons or other content while they are on the training site. This opens to the door to new kinds of upsells and giveaways. The current model is typically, the Fremium – give away a trial, low-cost or free app and then upgrade the user. Now it’s about selling add-ons or more content – giving away the razor and selling the blades.

NEW TECHNOLOGY LINEUP
While no one thinks that mobile will displace the laptop or even the desktop, it is clear that a reordering is taking place – technology will exist over a complex system with a server, a network, possibly a desktop and a laptop workstation. In all cases, whatever can be done quickly, on the road or on the run, will be on a smartphone. Everything bigger will be support or back-up, the smartphones will be the tip of the technology spear

So have have you taken your place in the mobile App space yet?

“Blogola” – FTC to go after paid blogs

Defining a new Social Media Contract
[More on story reported in BusinessWeek]

It’s about time that we got real with the Social Media world. If you have an audience and you want to pay off your rent/mortgage/student loan/Tesla Roadster, you’re going to have to confront the issue of getting paid for your blogs.

Companies will offer them to you – generally in the form of goods – but sometimes cash. So why shouldn’t you take it. I don’t have a problem with it although most Social Media orgs do.

My only issue is transparency – if you’re getting paid, let me know. Not only that, but what is the level of sponsorship? Are they giving you stuff or money and is it your unfettered, if perhaps biased impression? Or do they have the final word or feeding you the talking points? There’s quite a difference and an industry symbol cold clear that up in a heartbeat.

Like advertising, once the public realized that ads underwrote their newspapers and TV, they accepted it – it was a social contract. We clearly need the same thing here – and business will take off.

Since the Social Media community couldn’t develop its own Social Contract, it appears that the FTC will take a crack at it. Hope it works……

[iBreakfast’s March Social Media Report Anticipated FTC Action on Blogola]

Social Media Report Anticipated FTC Action on "Blogola"

iBreakfast’s March Social Media Report Anticipated FTC Action on Blogola

According to the FTC in a story reported in BusinessWeek, bloggers who get paid for mentioning products – sometimes known as Blogola – will become subject to their scrutiny.

For those of you who took the time to attend or read the iBreakfast’s Social Media Council Report, you’ll know that not only did we discuss this issue, but we described its resolution as an essential part of the Social Media Economy – providing of course, that it was transparent.

More than that, there are various degrees of blogola – from free product usage to our right payment and control over the actual content - and we should be able to rate that so the reader knows.

The main point is that if we establish an open, transparent system, we help everyone. But someone has to establish the ground rules and they have to be implemented.

My guess is that we’d all hate the FTC to be the ones to do this (just look how hard the banks are trying to pay off the TARP so they can get the government off their backs). But can we, as an industry, do it ourselves? WOMMA and Blog Council have guidelines but who really

Share your thoughts with us – maybe we’ll be the ones to take on this quixotic effort!

iBreakfast/LA report: Social Media Invades Hollywood

Jayson Dinsmore, NBC Universal · Cristian Cussen, MySpace Video · Allison Dollar , ITA · Kevin Chou, Watercooler, Inc.

Social Media Invades Hollywood. This event was sold out thanks to great speakers from MySpace (Christian Cussen), NBC Universal (Jason Dinsmore), ning and Watercooler (Kevin Chou) plus a cameo appearance by a child star Aria Wallace from Niceklodeon. Social media is having a great impact in managing the fan base for shows and in developing the career of individual talents. Most significantly, both MySpace and NBC a re suing social media to develop shows both in generating ideas, tsting them and then building buzz. MySpace has developed custom concerts and NBC has synergized well with reality TV shows.

Click for the full report

Alternate Funding Conference report

Todd Walters, Loanio David Feldman, Feldman Weinstein & Smith Lawrence Langs, iBusiness Partners Dana Stetson, The Receivables Exchange How do you access capital in these very trying times? VCs and Angels still have money but unless you are a successful serial entrepreneur or are prepared for ridiculously low valuations and high equity giveaways you may want to hold on to your business plan. Likewise, banks are tighter than Fort Knox, so unless you don't need their money and your credit is too good to be true, you might not want to bother. That seems leaves a few choices other than rich Uncle Joe, assuming he kept his money out of the market. So, in this half-day conference we looked at some of the near and long-term solutions to this problem. If you are a company with receivables - purchase orders from creditworthy companies - then factoring is the shortest way to raise money. However, the rates are legally usurious - up to 38% APR. But with the internet, a company like The Receivables Exchange has opened your receivables up for auctioning and could theoretically lower that rate by half or more. For those who need smaller loans - under $25,000 - then you could have used crowdfunding with sites like Loanio, Prosper etc. At least you could have until November of last year. That's when the SEC, probably reeling from its criticisms over poor market regulation and overlooking the Madoff's $50bn scam, stumbled upon the one true threat to the banking system - the online aggregators of people to people loans backed by little more than good credit scores. This $100 million industry worth say, one grommet on the "Tarp" was determined to be in the business of selling securities, so they shut them down pending new filings. The solution appears to be some legalistic maneuver of repackaging the loans as bonds and so on. Nevertheless this type of funding will in likelihood return and probably become increasingly available to small business. One side benefit is that Loanio found that it could go public by self-registering, which is way to dramatically lower their underwriting cost. This leads us to the closing presentation by reverse merger guru David Feldman and iBusinessPartner Larry Langs who specializing in taking companies public through so-called sell deals - i.e. using a defunct public company shells to go public instantly (the stock exchange used this technique itself when it went public!). This is a great idea if you can attract investor money - especially when the market recovers. The only downside is the high cost of quarterly filings. Then again with the internet, those costs could come down.