Click here to view the embedded video.

Super angel Jeff Clavier recently offered his opinion on the latest software trends likely to influence enterprises.

He pinpointed some major drifts he expected to see across the enterprise software landscape, and his opinion carries weight.

Clavier vetted enterprise solutions for the financial industry from 1988 to 2000. And he’s invested in over 75 startups in the last 6 years, mostly in the consumer space, at the helm of his firm SoftTech VC.

The super angel told NetworkWorld:

Innovation is slower on the enterprise side, beset by security issues. It’s a mature market with only a few acquirers; sales are more difficult and investors have little leverage when there are so few buyers.

Low cost, consumer applications that leverage the Web offer capital efficiencies not matched on the enterprise side – and they are fun to work with.

“The main trend is the consumerization of the enterprise,” Clavier suggests.

A move that is a direct result of the widespread consumer-style user interfaces in the likes of Flickr and Facebook.

Clavier believes the gap between the apps we use at home and those we use in the enterprise needs to converge. He sees consumer technologies going to the enterprise, rather than the other way around.

“Simple, easy-to-build, easy-to-learn, easy-to-use consumer-style apps will increasingly be used to power enterprises.”

He says web-based tools built for individuals as well as large and small businesses will prevail. And they’ll follow the 37signals model — something he labels as the “anti-Swiss Army Knife” approach to building enterprise applications.

“Startups I’ve funded in that space really bring that very narrow focus on doing something really well at a price which is extremely competitive, and basically wins against the traditional incumbents that were built 10 years ago.” He said.

In a sense it’s back-to-basics for the enterprise software market, with buzz words like “user-friendly” and “consumer-style” systems chosen and adapted to power enterprises.

Changes ahead for enterprise architectures will include more private cloud-based computing and the ability for cloud systems to inter-operate, notes Clavier.

]]> http://venturehype.com/super-angel-jeff-clavier-consumerization-enterprise-software/feed/ 1 http://venturehype.com/dont-send-porn-surfers-rules-angel-investing-saved/ http://venturehype.com/dont-send-porn-surfers-rules-angel-investing-saved/#comments Thu, 29 Apr 2010 18:00:06 +0000 Carin Pickworth http://venturehype.com/?p=4876

Image: Reuters

Sure you’ve heard about the infamous Dodd bill – probably gazillion times too many.

The startup and investment community frown upon the initial bill and after much lobbying it’s announced that 2 amendments have been proposed to save the startup and investment community.

Floor debates on the Dodd bill starts today. Let’s recap the amendments.

TechFlash was one of the first sites that publicized these proposed amendments. The article penned by Dan Rosen, Joe Wallin and William Carleton focuses in on 2 provisions of the bill that threatened to topple Regulation D, and in turn, many angel investors who would be crippled by the new rulings.

In an “it’s about time, but we’re still grateful” manner, Rosen, Wallin and Carleton detailed that, while the Dodd bill reforms were initially supposed to weed out the criminals, most angel investors would have been innocent victims if the amendments weren’t made.

Initial Changes

It has long been known that the few “cons” among us dapple in the gray area and fuel their fraud schemes and rip off investors, but the Dodd bill’s initially-planned changes to the rules would have been ugly for startups and angels.

Hideous actually.

Basically the Securities and Exchange Commission (SEC) was going to raise “accredited investor” thresholds – potentially more than doubling the amount of income or net worth an angel has to have in order to invest in startup seed financings.

And startups have to undergo a 120-day review period.

Ouch.

Break it down for me James Brown

The proposed amendments currently en route to the Senate should surely save the day for angel investors if they’re passed in.

And we have Angel Capital Association (ACA) to thank for that, after executive director Marianne Hudson, supported by ACA members, made contact with Senators and their staff to table the concerns of the collective angel community.

So let’s make a simple comparison of the initial proposal and the new proposal for both of the Dodd bill provisions that had angels taking cover.

1.

• Original Proposal – The Dodd bill would have fiddled with the accredited investor financial thresholds for inflation. This would have eliminated 77% of angel investors currently active in one foul swoop!
• New Proposal – That the standard net worth for an accredited investor will stay at US$1 million, excluding the value of a person’s principle place of residence.

2.

• Original Proposal – The Dodd bill would have required the SEC to review all accredited investor offerings within 120 days and if the SEC (who have recently been in the news for setting porn site net surfing records among staff!) did not make the filing review in time each state would have been free to impose their own rules. No, no, no! BAD!
• New Proposal – That the SEC rules for the disqualification of offerings and sales of securities involving individuals who are fraudulent – which will still help them to weed out the baddies without killing off the goodies. The frauds will probably have a prior record of violations of certain federal or state laws.

These amendments aren’t quite laws yet but we’ll find out in about 2 weeks. Stay tuned.

Update 5/14: Senate Vote to Save Startup Seed Financing and Angel Investing Could be Monday

Update 5/15: Resources for Contacting Your Senators About Saving Startup Seed Financing and Angel Investing

Update 5/17: Angel Investor Amendment Passes

Update 7/21: President Obama has signed the Dodd-Frank Wall Street Reform Act. Section 413 indicates that the standard net worth for an accredited investor will stay at US$1 million, excluding the value of a person’s principle place of residence.

SEC. 413. ADJUSTING THE ACCREDITED INVESTOR STANDARD.

(a) IN GENERAL.—The Commission shall adjust any net worth standard for an accredited investor, as set forth in the rules of the Commission under the Securities Act of 1933, so that the individual net worth of any natural person, or joint net worth with the spouse of that person, at the time of purchase, is more than $1,000,000 (as such amount is adjusted periodically by rule of the Commission), excluding the value of the primary residence of such natural person, except that during the 4-year period that begins on the date of enactment of this Act, any net worth standard shall be $1,000,000, excluding the value of the primary residence of such natural person.

MicroVentures, which is funded by its founders, aims to charge startups US$99 for a basic listing on the organization’s investing platform, then an additional US$250 for performing due diligence on behalf of potential investors, Clark said. There’ll be no charge to investors who want to use the platform; they’re permitted to invest between US$250 and US$5,000 per company.

Full article at WSJ

A New Model for Angel Investing: Funding It Forward

Presumed Abundance, a new fund and a new way of investing that could provide a new model for angel investment that melds the philanthropic with the excitement of the start up — all while creating an ongoing wave of new enterprises that do good for the world.

With Presumed Abundance, if the entrepreneur sells the company, the percentage the founder gave up is no longer just owned by the angel but by both the angel and the entrepreneur. The only stipulation is that the entrepreneur reinvests it in another exciting business that does good for the world.

Full article at GOOD

Ron Conway And The Technology Ecosystem

In his recent post, Michael Arrington of TechCrunch gives kudos to Ron Conway, the most prolific and one of the most successful angel investors in the business. He writes:

The sheer volume of deals he’s done over the last 20-30 years, investing in 3-4 startups per month, is staggering. And his hit rate is so high, particularly for the massive win startups, that very few investors can come close to the success rate he’s had.

Arrington highlights a post by Ben Horowitz, who gives specific examples of how Conway operates, and the key factors to how the super angel does business.

Full article at TechCrunch

“2010 should be the ultimate buyers’ market for investors with cash to spend because entrepreneurs who tightened their belts last year cannot do so indefinitely,” Steve Fredrick and Don Rainey of Grotech Ventures write in a VentureBeat guest post.

As the economy gets better in 2010, exit markets will improve, so will investors’ confidence and appetite for risk. High-quality entrepreneurs and fit (read capital-efficient) companies are all perked up and ready to expand, providing potentially profitable opportunities for investors.

“The best time to buy is when confidence in the economy is growing, but prices are still low,” Fredrick and Rainey note. Now’s a great time to take advantage of the recovery to build good companies.

Below is a quick glance at what’s in store for the Internet and mobile space in 2010 according to professional investors. Which might give you some insights into the sectors that might worth your angel dollar. Don’t blindly follow herd mentality though. Use your own judgment and treat this as supplementary info for your research.

Cloud Computing

Cloud computing is quickly changing companies’ cost structure. Paul Koontz of Foundation Capital told New York Times, “Entrepreneurs were coming up with promising ideas for virtualization software and Web-based cloud computing, both of which give companies lower-cost options for maintaining their technologies.”

Fredrick and Rainey sing the same tune:

We also expect to see more money flow to the cloud in 2010. Cloud computing (and other operations) provides startups with an operational trifecta: cost savings, infrastructure savings and productivity enhancement. To date, many companies have been reluctant to move into this space because of security concerns, but these fears are rapidly easing as security offerings mature to address this risk.

Mark Ashida of OVP Venture Partners, however, believes cloud computing “is overhyped in terms of short term revenue.” He told TechFlash, “The transition to cloud computing will take time with companies trying out multiple models.” Even so, Ashida does think the cloud is a “growing innovative space.”

Data Management & Security

As technology develops and becomes more integral to daily life, data management and security issues become an increasing concern.

“Today, 80 percent to 97 percent of business e-mail messages are spam,” according to Ray Rothrock of Venrock, “and malware, software that infects computers, has grown exponentially.”

Therefore, “[s]ecurity companies that help Web sites and computer owners protect themselves are ripe for investment as well,” Rothrock shared his perspectives.

Mobile

When asked what he’d focus on this year, Fred Wilson of Union Squares Venture answered:

Mobile, but not just everything mobile but the things you can only really do on a mobile device, and I think the advance in things like acceleramators, and compasses, and GPS and having all of those on a mobile device, are gonna create opportunities for new gestures, and new ways that we’re gonna interact with entertainment or games in a mobile way. So mobile is interesting to me.

The mobile device is “the new computing platform that drives new ways to deliver/consume rich media and content as well as monetizing transactions,” said Bill McAleer, managing director at Voyager Capital.

As for mobile OS, “this year, investors are most excited about Android, Google’s mobile operating system,” NYT reports.

In 2010, people are expected to buy two to three times as many Android-based phones as iPhones, “ripping apart the hegemony of the Apple ecosystem,” Peter Fenton of Benchmark Capital commented.

Ashida (OVP Venture Partners) agreed:

Android OS and Droid Phone – one of the most exciting announcements of 2009. Could be a game changer to a two horse race – Apple and Google. (What happened to Symbian/Nokia and Microsoft?)

On the other end of the spectrum we got iFund manager Matt Murphy, who remains bullish on the iPhone and iPod Touch platform.

Social Media

The world has embraced social media. What once seemed promising is now starting to deliver. “[W]e expect social media to move from promising to prime time,” Fredrick and Rainey comment. But the trick will be on how to best leverage this to make money.

Daniel Schultz, DFJ Gotham’s co-founder and managing director, set out to try and explain venture capital to his son’s 5th grade class. To accomplish his goal, Schultz created a presentation of stick figures and clip art to explain how someone might invest in an ice cream startup and make millions within a year.

Schultz’s fictional ice cream company and subsequent success has provided a fun way for students to understand what venture capital is (the one important element missing, of course, was the potential for loss). It’s also shredded lights on exactly why investing might appeal to a number of people.

What Does the Future Hold?

In his column, Mark Davis wrote, “Startups are the fresh blood in our economic system. From a macro-perspective new companies drive growth, create jobs and increase the overall standard of living. They are always the team to be rooting for. As a result, the fact that angels are helping to keep the pipeline of new companies full is important news – news that beats expectations.”

Given that angels play such an important role in our economic future, wouldn’t it be great if schools promote angel investing as a career option? Kids want to be pilots, doctors, and lawyers. Angel investors? Is it something that you do when you’re in heaven?

Investors of Tomorrow

Schultz’s presentation is a great example of how to turn a big boy’s subject into something fun and easy to understand. If kids are given the opportunity to learn the concept of angel investing the way they learn about curing people and representing clients in court, maybe more of them will make a cautious decision to become angel investors when they grow up.

Kids will learn the prerequisites for a typical successful angel: a stomach for risks, a small (preferably large) mountain of cash, and previous entrepreneurial experience backed with a strong rolodex to help portfolio companies succeed.

If they’re keen, great, strive for it. If they know early in the game they don’t have what it takes to be an angel investor, at the very least, there’ll be fewer fools in the future making investments in random startups and causing unnecessary stress and nightmares to themselves and to entrepreneurs.

While we aren’t likely to see any 5th graders at the next investors’ conference, the kids of today are the investors of tomorrow. Adding “angel investors” to the list of career options might not be a bad idea.

Just sayin’.

Credit: jelene

Run a farm. Join a Mafia family. Become a vampire, play poker, or open a restaurant.

Seems like you can do just about anything you want in the vast universe of social gaming.

Social gaming, those simulated games populating social networking sites such as Facebook and MySpace, are everywhere, and their popularity is growing every day. Despite their critics who liken developers to virtual scam artists, social gaming startups are becoming immensely attractive to angel investors seeking new frontiers.

Growing Audience

What’s compelling about social gaming is these aren’t just adolescent boys addicted to Grand Theft Auto. Social games are designed for the casual user, people who want to fritter away a few hours playing with friend. That opens up the window for unlimited growth. According to VentureBeat, social gaming is attracting a new and much more far-flung demographic than traditional video games: Women, older users and people who don’t consider themselves gamers.

And they grow fast, spreading like wild fire, racking up new users almost overnight.

Farmville launched on a Friday, and by Monday had 500,000 users. Playfish was able to get 5 million players to join its Restaurant City game in just 5 weeks. Zynga says more than 25 million people are now playing Mafia Wars, its game of crime families and mob warfare – that’s more than the population of Texas.

Zynga, which along with Playdom and Playfish comprise the Big 3 of social gaming. Launched 3 years ago this winter, the company boasts 50 million regular users and is profitable – some reports estimate it could turn US $100 million in revenue this year. Zynga has raised US $40 million and Playdom just got US $43 million in its first round.

Devil in Disguise?

But it’s not all fun and games, some say. Critics charge these social gaming outfits, especially the larger ones, amount to little more than elaborate scams aimed at getting users to cash in on “free” virtual goodies. A typical scam asks users to fill out a survey — in exchange for virtual currency to purchase make-believe geegaws and a surprise subscription fee tacked onto their cell phone bill.

Angel Backing

Social games still represent just a tiny segment of the US$50 billion international video gaming. But it’s a very successful segment: Social gaming is adding employees, adding users, and turning a profit. It’s an industry that’s not just surviving, but thriving in a difficult tech landscape.

Jeff Bezos apparently sees the opportunities. He’s pumped money into social gaming startups, including an undisclosed amount to Social Gaming Network and US $3 million to Kongregate through his personal investment vehicle.

The Right Mix

Social gaming may just be the right mix for some angels. “They’re really good at using the right mix of ingredients … not just for profitability, but for growing your user base,” says Tim Chang, principal at Norwest Venture Partners. Viral marketing and cross-promotion aid in driving traffic – and profitability.

Ultimately, social gaming offers more exit strategies than the traditional video game industry – the sphere of interest is so much larger. Earlier this week, in fact, there was a grand exit when Electronic Arts snapped up Playfish for a reported US $400 million.

That alone might be enough to sow your seeds in FarmVille.

Hot Deals Emerging

BBC News’ Maggie Shiels reported that Silicon Valley is showing strong signs of life, citing such acquisitions as, “Mint.com by Intuit for [USD]$170m (£102m), Adobe buying Omniture for [USD]$1.8bn (£1.08bn), the sale of Skype to a private equity syndicate for [USD]$2bn (£1.2bn) and the purchase of SpringSource by VMware for [USD]$420m (£254m).”

While this activity in the industry is certainly showing positive signs of life, unemployment in the Valley is maintaining near its comfortable 11.9%. Still, U.S. Federal Reserve chairman, Ben Bernanke told a Washington think-tank that the recession is likely over. The combination of this promise and emerging opportunities are overshadowing the still-present challenges in the area, grabbing the attention of investors.

Valley Leaving California in the Dust?

This change in the landscape for Silicon Valley is in contrast to what is happening throughout the rest of the state of California. The state’s economic research team estimates California is likely to remain stuck in the recessionary sludge throughout 2010. Technology appears to be promising for growth, but not enough to carry the state to rapid recovery.

Such an outlook shouldn’t deter angel investors, however, as some of the most successful startups, such as Microsoft, Google and Cisco, emerged during a down economy. According to David Kralik who recently launched his own company at TechCrunch in San Francisco, the recession is a great opportunity for startups.

What’s Behind the Growth?

One of the key drivers for the re-emergence of Silicon Valley is valuations are more realistic and entrepreneurs are hungrier for sound partnerships with angels and venture capitalists (VCs) who may be asking for tighter terms than in the past. Even better, a number of VCs are considering deals that in the past may have been too small to fit their portfolios, providing additional choices for entrepreneurs.

Now that VCs are increasingly considering deals that were previously reserved for angels, what is the outlook for such investors in Silicon Valley? In truth, angels are responsible for much of the recent activity in this area, or at least the activity that kept the pulse. Such presence has better positioned angel investors to embrace the future, while securing their place – and importance – in this market.

Sound Takeaways

For those angels who may still be watching the activity in Silicon Valley without taking the plunge, consider these takeaways from the Y Combinator’s AngelConf Conference and reiterated by Venture Beat that apply in any market:

• Don’t worry if the idea seems crazy
• The lifeblood of angel investors is deal flow
• Don’t be afraid to throw a little dynamite into the status quo
• The Rule of 12 – statistical diversity only comes from investing in 12 companies
• One-third of your portfolio companies will go out of business
• If your goal is making money, get out now.

Now, angels may find they have some competition in the market. Despite a quiet year, given the tight fist most VCs have had on their funds, there is a slight hum in the air that these might be improving.

Seed vs. Series A

According to VentureScore, VC deals are starting to increase, but the terms seem to be changing. For the better part of the last decade, VCs have committed themselves to Series A type funding. As investments are starting to heat up, “seed” financing is drawing more of the VC crowd. [1]

While seed financing and Series A deals are similar in the establishment of a valuation and ownership stake, the main difference is in the amount of money invested. Series A financing tends to be between US$500,000 and US$2 million. Seed financing tends to be anything below the US$500,000 benchmark.

This move may seem like something that has resulted from the recent recession, but seed financing isn’t necessarily a new ploy for venture firms. In fact, Y Combinator invested just US$6,000 in the cell phone software maker Loopt in 2007. Said Paul Graham, Internet entrepreneur and founder of the Y Combinator, when asked why he made such a small investment, “It’s gotten to the point now where the most important things you need to found a tech startup are food and rent.” [2]

Micro VCs

Startups really suffered the most when the dot com bubble burst in the early 2000s and the euphoria for Internet ideas died. VCs were suddenly very leery of startups and poured their focus on companies with proven track records. While that was certainly a safe approach, it wasn’t necessarily the most innovative or the one with the highest potential for return. Technology is still an area of intense opportunity, and has been throughout the entire decade. [3]

As valuations have also gone down, it makes sense that amounts raised have also decreased, but this isn’t all bad news. What is emerging is what Philip Smith refers to as Micro-VCs that are taking the place of angel investors in some situations. These investors include Nueva Ventures, Fruition Ventures and Capybara Ventures, who are drawn to the dynamics of great ideas, cheaper costs of execution and lower valuations. This trend of micro-investing and micro-startups could be the key to future growth, but it doesn’t mean the investing is as streamlined as angels can provide. [4]

Implications for Angel Investors

So, what does this change in the atmosphere mean for angel investors? It does mean increased competition and activity in the field, but it can also mean an advantage when the angel really wants to get on board with a particular startup. The key will be to identify the steps the VC will likely take in the deal. Remember, just because they are willing to do seed financing doesn’t mean they are willing to accept seed financing deals.

Remind the entrepreneur of these tips from Caine Moss in the Entrepreneur Corner:

• VCs might expect more than 20-40% of a company even with seed financing
• VCs might expect more than 1x liquidation preference
• VCs are likely to expect Series A-type control rights: they should be allowed one board seat, not control of the board
• VCs may demand certain investors rights they don’t truly deserve
• VCs could want a “super-pro rata” right in seed deals
• VCs may opt to decline to participate in Series A funding when the time comes, which can create a negative market perception. [1]

VC investments can offer substantial advantages to startup companies, but the price may be too high to accept the investment. This is where an angel may hold more appeal. It isn’t more lenient investing; just simply more equitable.

Notes:

[1] Seed is the New Series A for VCs
[2] Thinking Small
[3] Looking for Seed Money? Venture Capital May be the Answer
[4] New Dynamics Emerging in Early Stage Funding

To gain a better understanding of why angels are continuing to drive activity and investments in a slumping global market where venture capitalists (VCs) have tightened their purse strings, Venture Hype talked with Skip Simms – Managing Director, Business Acceleration/Manager, MI Pre-Seed Capital Fund.

* Edited interview

VH: What do you feel is the biggest contributor to the significant decline in VC investing?

SS: The economy. It’s a natural chain reaction. For VCs to make an investment, they have to believe the company they invest in can go public or can be sold in a few years to a private equity firm or another company. Private equity firms today are looking for fire sales, which is opposite to the intent of VCs.

Companies can’t get bank financing and are holding cash to make sure they get through this period. The public markets have no appetite for risky investments. Without a high degree of confidence for an exit in a few years, a VC isn’t interested in making new investments.

VC firms themselves are having trouble raising more money for another fund. They have to make the commitments to their current funds last longer. As a result, VC firms are also holding cash for their current portfolio of investments. They know it’s very likely their companies will need more cash, which they won’t be able to find from other investors.

VH: Why are angels gathering more traction in deals?

SS: Angels are making more investments because more people are becoming angels. Investors who’ve made investments for years are now like VCs — they’re being pickier about what they invest in and they, too, are holding on to their cash a little tighter. What’s interesting is that there are more people interested in partnering with other angels.

Skip Simms

VH: What trends have you noticed emerging in angel investing?

SS: Angel groups are becoming more popular as there’s comfort in groups. They’re still taking longer to make decisions.

VH: What do you believe are the next promising opportunities?

SS: IT is coming back strong. Software as a Service (SaaS), social networking, medical records software, and communication applications are being created daily. The challenge is to decide which ones are really ‘breakthrough’ ideas.

Alternative or clean energy is still of high interest, but it’s waning as people realize how far away we really are in commercializing these great ideas.

VH: Anything else you’d like to add?

SS: Until the government gets out of the investment business and allows the free enterprise system to work again, the government will be where we have to look for investment first, even at the very early stage of product development and commercialization. Without a restored free enterprise, we’ll continue to move toward a socialistic society and nurture a culture of entitlement versus risk taking that offers great rewards for the risk takers.

* VH: Special thanks to Greg George of GTI Advisors for recommending Skip.

Link:

• Ann Arbor SPARK

* Edited interview

VH: Alastair, from what you’ve seen throughout the years, what makes a successful PE firm?

AG: Most people would say that private equity firms are only successful if they provide a good return to their limited partners (LPs), who are the institutional investors that invest in a pool of money called a fund. When the companies that they back mature and they sell their stake or take the companies public, then the institutional investors gain a return on their investment.

But there’s a gray area at work here. A PE firm may have a successful portfolio company that goes public and returns 10 times the investment. But some investors may prefer to have 10 portfolio companies that achieve smaller returns of 2 times or 3 times the investment. You have to look at returns over time.

Additionally, I’d like to think that a successful private equity investor is one that treats its portfolio companies fairly and which has the foresight to invest in up-and-coming sectors, rather than following the herd and backing what’s been hot for the past year.

VH: Do you see any emerging trends in private equity investing?

AG: That size matters. I think we’ll see many more firms reducing the size of their next funds and curtailing their investment activity for a couple of years. Then, in about two years, if economic recovery has taken hold, what we’re going to see is a lot of investors — who may have lost their jobs during the current crisis or have seen their participation reduced — launch first-time funds. We saw this a few years ago when lots of first-time funds were launched. I know of a lot of out-of-work investors/fund managers, and I see a lot of smart ones not fully being used. In a year or two, they’re going to work up the gumption to launch their own fund. It may be VC-focused or buyout-related, but I’m certain we’re not that far away from it.

VH: Given the current trends, what advice would you give to private equity investors/fund managers?

AG: I don’t think they’d listen to me. But if I were to impart any advice it’d be to calm down. I see a lot of unease and “jitteryness” among investors. But I believe strongly in cycles and that conditions will improve. I can’t say when or how quickly, but we’ve all seen corrections and missteps before. The industry will recover, so chill out.

Link:

• Got an interesting story idea? Follow and tweet Alastair on Twitter