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iVentures10: Starting up in Illinois

Posted on May 1, 2008
Filed Under VC, Technology, Chicago, Business | 1 Comment

iVentures10As programs like Y Combinator and TechStars gained popularity I started to wonder why something along the lines of those programs didn’t exist here in Illinois. After all the modern web was pretty much born at the University of Illinois at Urbana-Champaign (mosaic/netscape, apache, etc.) and other notable web superstars like PayPal and YouTube have come from the minds of U of I grads. Well, I didn’t have to think about this idea for long…

Enter the iVentures10 program. iVentures10 is a program created by Illinois VENTURES initially as a “new kind of internship” for U of I computer science students. However, they recently announced a partnership with Mozilla along with their intention to take applications from around the world.

I think this is a fantastic thing for tech entrepreneurs based here in Illinois and a great way to get others that aren’t based here to spend a summer here in Illinois building their companies. Hopefully we can all show them such a good time they won’t want to leave! Keeping our tech talent here in the state is crucial to Illinois becoming the tech center it deserves to be and this program will clearly help with that effort.

You can learn more about the iVentures10 program on their site and if you think you want to submit an application make sure to get it together soon. The final day to submit applications is May 15th.

Side note: You can also learn more about the iVentures10 program at the next TECH cocktail mixer on May 29th. The team will be at the event along with some of the folks who have been accepted into the program.


New VC Blog: Texas Venture Capitalist

Posted on April 19, 2008
Filed Under VC | Leave a Comment

I had the pleasure of meeting up with Aziz Gilani the other day at Peet’s Coffee in Evanston. Aziz and I ended up meeting each other through DFJ and our friends at IllinoisVENTURES. Aziz is currently a student at Kellogg who will be joining DFJ Mercury, our Houston, Texas based fund, as a summer associate in a couple months (although he is already spending a lot of time with the Mercury guys looking at deals and helping portfolio companies).

Aziz is a very smart guy especially when it comes to enterprise software. What I loved about our conversation was that we were able to teach each other a lot due to our complimentary skill sets (my main competency being consumer web and his being enterprise software). I hope to continue learning from Aziz over time and I hope I can help him learn a bit more about the consumer web as well.

Anyhow, I wanted to make sure all of you were aware of Aziz’ new blog titled simply Texas Venture Capitalist. I am sure he will have some great insights into new technologies, especially enterprise tech, so you should go ahead and subscribe now to ensure you don’t miss anything (no pressure Aziz!).

I am looking forward to working with Aziz and hopefully we’ll be able to put on a TECH cocktail down in the lone star state this summer.


Liquidity for VCs: A New Exchange?

Posted on April 18, 2008
Filed Under VC, Business | 4 Comments

Update: Check out the comment from Dave McClure to hear his thoughts and read his clarification on the VC side of things (i.e. he does think that VCs are needed and helpful in the market but things more competition is a good thing - agreed!). He also links up his startup metrics which are getting better every day.

Liquidity for VCs and entrepreneurs is a topic that continually comes up. It has resurfaced in the last week due to the fact that public markets have pretty much been closed to startups for a while now leaving M&A as the primary liquidity event for entrepreneurs and VCs. This time Fred Wilson is the one kicking off the conversation about VC/entrepreneur liquidity.

Fred is worried about liquidity for obvious reasons but he also adds a new thought into the mix. He claims that web services that are exited via M&A to larger companies can languish inside their new corporate homes. This worries him as a user of the services and has pushed him to think about newpaths to liquidity even more.

The discussion over liquidity ramped up over the past week due in part to the interesting nature of the idea but also spurred along by the TechMeme effect (Fred event spoke about the topic on Yahoo’s Tech Ticker show). It has been interesting to see everyone’s opinion on the issue all the way from VCs should stop whining to agreement with Fred that a new form a liquidity needs to emerge. After absorbing all of the opinions across the web I decided I should chime in.

In fact, I actually wrote about a related topic back in October 2007 in response to my friend Dave McClure’s post. Dave argued that a market should be developed that would allow transparency and would disintermediate the VCs by allowing lenders and other investors to invest directly in startups while allowing startups to keep most, if not all, of their equity. As a student of finance and VC I found that idea very intriguing.

A large impediment to this type of market is solid data (and metrics). With good data debt and equity markets for startups could look like mortgage markets (ouch - bad example!) or the public markets. If you can look at historical startup data and understand the numbers enough to make a solid bet and know your chances of success an interesting market emerges. (Side effect - more actuarial jobs open up.)

Let’s say we can get the data and can figure out the right metrics, then what happens? Well, here is where things get a little tough. The SEC (or a new org like them) would probably want to step in and protect the individual investor from themselves. That’ll be a big brick wall in the way of innovation and it makes this idea a little more long term (man, I hate regulation). What can we do in the meantime then? This is where Fred’s post comes into play.

Fred argues that there should be another way for VCs to liquidate their positions and it could take the form of an exchange. This exchange would not be open to the general public and it would not disintermediate VCs like the one Dave wrote about back in October. What it would do is allow qualified/accredited investors (i.e. anyone except the average joe individual investor - this exclusion eliminates the need for SEC oversight) to trade positions in private companies. This way VCs could trade their positions to others (like PE firms) rather than trying to bring a company public or sell their companies to larger companies.

It is an interesting idea and one that already happens informally as Fred mentions in his post. He simply thinks that a formal market may help. It turns out that this type of market is already springing up in various forms surprisingly enough.

Goldman Sachs launched an exhange for private companies called GS TRuE - short fo Goldman Sachs Tradeable Unregistered Equity - about a year ago (this market is open only to Institutional Investors with $100mm or more in assets). Other networks like this are also popping up (like OPUS-5) and, according to this May 2007 WSJ story, the Nasdaq is planning on launching a smaller market for unregistered equities.

These markets will probably consolidate over time and then we’ll have our main market for unregistered equities which could be game changing. This isn’t quite what Dave was arguing for but it is a step towards it in many ways.

Even without the need for VC liquidity I think this would have come to bear. The increasing regulation of public companies is becoming unbearable for many managers and directors while also adding a lot of expenses into businesses. This is why so many large companies are choosing to be bought by PE firms and brought private (CDW is a great example).

This is a very exciting time for finance/business geeks like myself. Finance can be very innovative and we’re seeing the proof of that right now. I can’t wait to see how these new markets work out.


Hopping Over the Fence: I am Joining DFJ Portage Ventures

Posted on March 2, 2008
Filed Under VC, Chicago | 15 Comments

DFJ Portage VenturesAfter considering a handful of great opportunities here in Chicago I have decided to join up with DFJ Portage Ventures as an associate. I am really excited about this opportunity for a handful of reasons which, you guessed it, I am going to outline below. Here it goes!

Working for the Best

DFJ Portage is the most respected and knowledgeable firm in the Chicago/upper Midwest area (at least in my humble opinion). In keeping with my theme of working for the best DFJ Portage fit the bill and then some.

Commitment to building up Chicago and the Midwest

DFJ Portage has been, and is, very committed to bulding Chicago and the Midwest up as the technology hub it should be. There are a lot of great people here along with great Universities and DFJ Portage wants to make sure talented entrepreneurs and technologies can stay in this great city/region and build world class companies here.

As you all know I share this committment to Chicago and the Midwest and this has manifested itself in many ways but most famously as the TECH cocktail gatherings I put on with my co-founder Frank Gruber. Working at DFJ Portage will allow me to continue to push this mission forward.

Desire to build a better VC firm

The partners at DFJ Portage are committed to building a VC firm that is much more friendly to entrepreneurs. As long time readers know I have written about “fixing” VC since the early days of this blog so I am very excited to be able to take some steps toward building a better, more entrepreneur friendly, VC firm at DFJ Portage.

Learning from the best

At DFJ Portage I will be able to learn from Matt McCall and Ed Chandler which is a great opportunity in and of itself. However, I will also get to learn from all of the entrepreneurs I meet and that we end up funding. The potential to pick up new things in incredibly high at DFJ Portage and that gets me pretty fired up.

Working with technology in and outside the web

While I love the web and I will be spending a lot of time on web related deals at DFJ Portage I also have a love of other technologies like nanotechnology and biotechnology. At DFJ Portage we have five focus areas which are:

Since we have these five focus areas I will be able to branch out and look at another technologies I am passionate about while still working on web related stuff. I will also get to work on clean tech deals which fall under the nanotech space. Being a sustainable/green advocate I am excited to be able to help entrepreneurs in that space as well.

There are a number of other reasons why I think DFJ Portage is the right place for me but I think these five really sum things up. At a high level I believe working at DFJ Portage will allow me to be the change I want to see and I’ll get to work with a world class team and top notch entrepreneurs on technolgies and businesses I am passionate about while creating that change. That is really all I can ask for.


Midwest Venture Summit 2008: Business Plan Submission Underway

Posted on January 24, 2008
Filed Under VC, Technology, Chicago, Business | 1 Comment

I received a note from the IVCA today about the Midwest Venture Summit that is coming up and I wanted to make sure I got the info out to all of you.

The Midwest Venture Summit is a great way for entrepreneurs of Midwest based early stage* and series A+** companies looking for funding to get in front of the Midwest’s top VCs. In fact, you can get in front of over 100 of them by presenting at the summit. Not too shabby.

The Midwest, as defined by the IVCA, includes these states: IA, IL, IN, KY, MI, MN, MO, NB, ND, OH, Western PA, SD, WI. These are the areas from which the VCs and various service providers will be coming from and from which your company needs to be from in order to participate in the summit.

I would suggest submitting your business plan if you are looking for funding in the Midwest. Sure, it costs $175 but you will get far more value than that if you are selected to present.

Even if you do not end up raising any money via your presentation at the summit (although companies that presented at the past years summit have raised $222mm to date so chances are pretty good that you may land a deal) you will get great feedback from the top business and technology minds in the Midwest that will help to shape your business going forward.

The deadline for submitting plans to the Midwest Venture Summit is January 31, 2008 so make sure to submit your plan sooner rather than later.

Again, this is a great opportunity for Midwest startups and VCs alike. Events like this one will help to put the Midwest on the map as the technology hub that it is.

Disclaimer/clarification: I do not receive any money from promoting this event. I just wanted to help get the word out.

MVS Details:

Dates: March 17th & 18th, 2008

City: Chicago, IL

Venues:

Day 1 will be located at the University of Chicago Gleacher Center, 450 North Cityfront Plaza Drive, Chicago

Day 2 will be located at the Sheraton Hotel & Towers, 301 East North Water Street, Chicago

—————-

IVCA Company Stage Definitions:

* Early stage companies typically have:

**Series A+ companies typically have:


Automattic and Partial Founder Buyout

Posted on November 14, 2007
Filed Under VC, Technology, Business | Leave a Comment

I was as surprised as most when I heard that Automattic - the guys behind WordPress - turned down a $200mm buyout offer but it looks like Mr. Arrington may have uncovered the reason why. It looks like Automattic’s investors aren’t ready to cash out quite yet and would like to do another investing round.

Ho hum you say? So what? Well, there is a twist to this new round of funding. Apparently “most” of the money will go straight into the founders bank accounts. Yup, that’s right, it looks like the founders are going to be partially bought out by their investors.

This new round of funding will be lead by existing investor Polaris Venture Partners and is rumored to be somewhere around $50mm.

It seems as if the investors think the company can surge past the $200mm offer and head toward a bigger sale but, with only $1.1mm put into the company meaning the founders still own a lot of it, the founders thought the $200mm was a good price. To keep the deal on the table the investors have agreed to simply buy some of the founders shares in the form of another round of funding.

Of course a lot of folks, including myself, have talked about this type of situation but this may be one of the bigger instances it actually happening should the deal prove to be true.

I will be eagerly watching this as it plays out to see if:

a) The partial founder buyout pays off for the VCs in the form of a bigger sale price.

b) The founders stay as committed to the business even though they have a lot of cash in hand.

I am not sure Automattic is worth more than $200mm but we’ll see they may have something up their sleeves. As for the founders still remaining engaged - I have always argued that they would out of passion for their idea/product but this was in the context of much smaller amounts of money ($1mm - $3mm or so). However, I want to believe that, in this case, the founders still feel that Automattic is their baby and they will want to see it reach its potential. We’ll see…

This could prove be a big data point for the idea of partial founder buyout.


Creating a Valley Outside the Valley

Posted on November 12, 2007
Filed Under VC, Technology, Business | 3 Comments

As promised, here is the follow up to my post that covered the issue of whether or not you need to be in the Valley to really make a run at starting an internet company (thanks for all the comments guys). As I mentioned in the post I don’t believe that you have to be in the Valley to make things happen but it is undeniable that there is more funding in the Valley and a lot of great companies, even some of the biggest and best of all time, have been started there. That said, it seems that the question we really need to ask is:

How did the Valley become the Valley?

Once we nail that down we can start to look at the situations in other cities across the country, and the world, and start to move things forward.

In talking with a wise man a few months ago I think I have learned how the Valley came to be.

It seems that some of the big VCs today (who were small upstarts back when) took a look around the Valley and saw a lot of top talent slaving away inside big companies. They found it strange that none of these really smart folks would spin out and start their own companies. Then they realized why this was the case.

They had yet to see anyone else spin out of a big company and be successful.

After the VCs figured this out they knew what they had to do. They had to rip these smart people out of the big companies kicking and screaming, set them up with office space and cash and then get them to build the next big thing.

After doing this successfully for a number of years others began to see that starting a business was a viable things and the Valley was born.

That’s not the end of the story though. If all that happened were that certain folks started companies, built them up, sold them and then either retired or started another company the Valley wouldn’t have continued to grow. What needed to happen was the lieutenants from the original crop of startups needed to head off on their own and start their own companies and so on and so forth.

The effects of the people second in line eventually starting their own things and then their lieutenants starting their own things created an entrepreneurial culture that caught fire. Even people outside of the company building ecosystem then started thinking to themselves - “Hey, I know that guy and he’s no smarter than me. I can do this too.” - and then started to start new companies.

So it looks like what we need to do is encourage the lieutenants of companies like FeedBurner, IAC, Monster.com, AOL, Orbitz, Tacoda, etc. to start something on their own and keep it in their respective cities. Of course the local VC scenes need to take some risk to back these new entrepreneurs but if the risk is taken it seems like we can create big successes outside the Valley and, as can be seen in the Valley, success breeds success.

Of course this is an oversimplification and a lot of work needs to be done on the funding infrastructure in places like Chicago and D.C. and even places like NYC and Boston (although to a lesser extent since there are a lot of firms around those cities). Work also needs to be done on entrepreneurial education and there need to be things (that’s a technical term) around that encourage entrepreneurship as well. That is all buildable though. It will just take time.

Let’s start encouraging and helping some of the lieutenants from successful startups to start thinking about, and starting, their own things. Once that starts to happen, and if we can keep in rolling, we can start to build Valleys in other locations.


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