Here are 10 Bold but very possible predictions for 2012…please feel free to add some comments or your own predictions. In April, I’ll reevaluate and possibly make a few changes or add some new predictions.
1. Microsoft buys Twitter
2. Apple buys Spotify
3. Facebook (post IPO) buys Yahoo
4. Ebay buys Airbnb
5. Google buys Square
6. HP buys Dropbox
7. Samsung buys Blackberry
8. Comcast buys Netflix
9. Salesforce buys Hubspot
10. EMC buys Box.net
Venture capital plays a vital role in the launching of businesses in the United States. It fills a funding niche for many businesses that would have no other access to the capital required to grow. Given this fact, it should be considered troubling that the venture capital industry is in crisis.
Venture capital plays a huge role in the launching of vital businesses. It is by far the biggest individual funding source for technology companies, for example. Consider the story of Google. The search engine is only a little more than 10 years old. How did it grow to become the dominant force on the web in such a quick time. Yes, it is the best search engine in the mind of most people, but that isn’t enough. It needed capital to hire employees, build out server centers and undertake all the daily, costly tasks involved in building a small company into a large one. Without VC, it never would have pulled it off.
The venture capital industry in the United States is in crisis because it is contracting. This is not just a measure of the economic problems we’ve been experiencing. The crisis started in 2006 with 2007 showing the first real scary statistics. 2008 was even worse. Nobody knows about 2009 because it is too early to tell, but nobody is very optimistic.
So, what is the crisis? Well, the venture capital industry has contracted a lot. The numbers have fallen from 1,019 venture capital firms to 868 as of 2008. That number has undoubtedly dropped even more in 2009. The problem is the number of funds put together by these firms to invest in companies is dropping dramatically as well. Of the 868 firms that existed in 2008, 828 had only launched one fund for investments in the previous eight years. One fund provides capital to between 10 and 20 companies.
What does this all mean? The answer is unclear. As other parts of the world such as China and India grow economically, the investment money may be flowing to them. What is clear is there is less of it in the United States. In these troubled economic times, that simply is not good news.
Thomas Ajava writes for VentureCapitalInvestmentFirms.com – where you can learn more about venture capital funding.
Getting venture capital should not be the end all source of financing. The key to success is bootstrapping.
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Let’s say you can’t raise money for whatever reason. This doesn’t mean you should give up. The key to success is bootstrapping.
Find out how deep the rabbit hole really is. The equation is simple: amount of cash divided by cash burned per month. As my friend says, “The leading cause of failure of startups is death, and death happens when you run out of money.”
Guy Kawasaki’s mantra is “Empower people.” He is co-founder of Alltop.com, a managing director of Garage Technology Ventures, former chief evangelist for Apple Inc. and author of nine books–most recently, Reality Check. Visit smallbusiness.alltop.com.
Read more: http://entrepreneur.com/magazine/entrepreneur/2009/may/201102.html#ixzz0JDeNUnQv&C
Whether companies are touting emerging technology or a bricks-and-mortar model, the same requirement holds true when seeking out venturecapital funding: a demonstration of sound business strategies.
That means a defendable technology or business model, a well-proven team, a solid business plan and a clear exit strategy to garner interest from venture capitalists.
In the third quarter of 2008, venture capitalists invested $7.1 billion in 907 deals, according to the MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association (NVCA). The report showed quarterly investment activity was down 7 percent compared with the second quarter of 2008, when $7.7 billion was invested in 1,033 deals.
Jeremy Swan, a director in the private equity services group of the New York office of Protiviti, a global consulting and audit firm, said the profile of firms obtaining venture capital in the current economy fit the same mold as those financed pre-crisis. The difference is VCs are much more focused and apply a heavier hand when it comes to due diligence.
“What makes a business successful in seeking venture capital? The criteria hasn’t changed,” Swan said. “The business has to be focused. The management team has to be focused and understand the market, and it has to be viable as a business for the long term.”
There was just one venture-backed IPO in the third quarter of 2008, and 58 merger-and-acquisition exits during that same quarter, according to the NVCA. The first three quarters of 2008 were not much better. There were six venture-backed companies that came to market, the lowest volume for the first three quarters of the year since 1977.
George Brown, a Protiviti managing director based in Washington, D.C., said that if a company seeking venture funding has a tech play, VCs want to see more than a proof of technological concept.
“They’re looking at an actual business created, a revenue line, a cost line understood in the current economy and where they want to take the business … an economic proof of concept,” Brown said.
These companies need to show a competitive advantage, a means by which they can create a larger market or take away shares from others in the same business space.
In addition, company executives have to show that they can operate successfully on a technical and financial level.
“The track record of the team and a demonstrable business model and operating model are very important for the money people to get behind,” Brown said.
As is flexibility, according to Ken Herbert, vice president of the business and financial services practice in the Mountain View, Calif., office of global businessconsultancy Frost & Sullivan.
The management needs to be prepared to change roles once VCs take a stake in the business. The executive team needs to be extremely open-minded, Herbert said. Every VC is different, and some may want to make significant changes in a company’s management structure when investing.
Yet Herbert noted, “It’s rare that a person is just shown the door and told, ‘See you later,’ because they’re oftencritical to the business.”
These are the individuals who have the client contact or the technical knowledge.
It is not uncommon to transition them into another role for a number of years,he added.
Peter Boni, vice chairman of the 3,000-member American Electronics Association, or AeA, the country’s largest trade association in the tech industry, said it’s more difficult now for a new company not currently financed to get financing from venture firms. Many VCs are putting their effort into supporting their existing portfolios because it will take longer to realize an exit.
The AeA, based in Washington, D.C., is in the process of merging with the Information Technology Association of America.
“It’s very important for a company today to preserve and protect what cash they have and do what’s only absolutely necessary,” Boni said. “We’ve advised all of our companies to be predatory in their sales and marketing while preserving andprotecting their cash.”
Companies that have a “me too” business plan or a product that might be a “nice to have” — but not a “have to have” — are in a tougher spot, Boni said.
“In this economy, you really want to see the money bucket of value that’s created by buying someone’s product,” he said.
Herbert points out that the IPO window of opportunity may not be open long, which makes sparking the interest of a trade buyer just as important.
As I was thinking of writing this post, I was sitting in my hotel room at the Nantucket Conference, a gathering of a small group of entrepreneurs, venture capitalists, and industry professionals, all united by the process of value creation. Of course it took me a couple extra days to actually get these thoughts down, but here goes.
As with any relationship between groups of people, each is unique. But at its most general, the dynamic between entrepreneurs and venture capitals can be described in my opinion by one word: imbalance.
What do I mean by “imbalance”?
In general, the relationship going in isn’t equally weighted. Why?
1) Venture capitalists go into to deals with their Eyes Wide Open. They have likely studied the space and other companies in the space. They’ve backed companies before. Venture capitalists look at more deals in a month than a typical entrepreneur will work on in a lifetime.
2) It can take an experienced venture capitalist a few minutes to do a first-pass evaluation of a deal (based on team, market, idea, timing, overall opportunity) and get a sense for next steps, but it takes an entrepreneurial team years to build products, hire and shape a company, devise a strategy, and create real sustainable value.
3) Venture capitalists become EXPERT at evaluating deals. Few entrepreneurs are “expert” at raising money.
4) Venture capitalists are experts at negotiating venture financing deals. They’ve seen many different types of deal structures and have experience with what works and what doesn’t work. Entrepreneurs have some experience and if they are lucky they have a sense of what they’d like to see happen.
5) Deals typically have “down-side risk protection” built in to protect the investors’ downside in case things don’t go well. Entrepreneurs’ only downside protection is the fact that it’s usually not all their money at risk 
6) The venture capitalist will likely join your board. The board’s main responsibility will be to fire/hire the CEO. If this position is currently held by you, recognize what you are getting yourself into.
So what can you as an entrepreneur do to get the relationship to point where there is more balance?
1) Go in with the proper expectations. You are asking someone else to put up the money for you to pursue your dream. That money isn’t free and it’s not an obligation that you take it; it’s a privilege (as long as you choose the right partner).
2) Build the onion. Get the best advisors to advise you and help you figure things out.
3) Get initial support and be in a strong position to demonstrate progress. Early angel investors can be great for giving you some headroom while you are prototyping or getting initial customer traction. More traction = more leverage = more interest in your deal = more competition for your deal (even in this environment, some deals are getting done) = better deal for your company.
4) Realize that if things go well, everyone will (hopefully) be happy, but if things go badly, everyone will lose out.
5) Understand venture capital deal terms and focus on the totality of the deal, not just the valuation (preference, participation, drag along, board voting, board composition, option pool, etc).
6) Have a great lawyer + advisors who can review all your term sheets and deal terms.
7) If possible, be personal friends with a venture capitalist (who you will never pitch for money) so you can ask for inside tips on the process and on deals etc.
8) Consider yourself fortunate to be in the position you’re in, and know that the VC’s who back you will be lucky to have backed you!
9) Be high-integrity and sincere always. Depending on which type of entrepreneur you are, you’ll likely be seeing these folks again and again. You’ll probably have multiple chances at bat. Entrepreneurs everywhere will be rooting for you!
Not sure if this is helpful, but the imbalance in the relationship between entrepreneur and VC is real. If you can go in with your Eyes (not) Wide Shut, you’ll have a better shot at having a good outcome.
SocialTrak.com, Locally Focused Social Network and Online Community, Launches, Connects Members Personally and Professionally
Links to and Complements Other Social Networks Like Facebook, LinkedIn, and Twitter
BOSTON, MA, June 2, 2009 – SocialTrak, (www.socialtrak.com) a new social network and online community for those who want to connect with friends, professionals, and potential customers in their local area, has launched. SocialTrak is designed specifically to locate, communicate, and network with others in a member’s geographic area or with people who engage in similar activities, hobbies, casual or cultural pursuits. Members can create multiple profiles, network for business purposes, search for jobs, post classified ads, upload photo albums, and establish or maintain friendships.
Membership is completely free. Donations of $.25 cents will be made for each new member that signs up to SocialTrak. New users will be able to choose from 12 different charities.
Jonah Lupton, SocialTrak founder, said, “Connecting locally is a more powerful and effective way to network. That’s why SocialTrak takes social networking and social media closer to your local area. SocialTrak offers customized networks based on geography, personal interests, and career field. We are launching in New England, a region that offers so much professionally, academically, culturally and socially. Our goal is to simplify the social networking experience and enable people to make more valuable personal and business connections.”
Initially, SocialTrak will focus on geographic areas around New England including Boston, Cape Cod, New Hampshire, and Rhode Island. The company will expand the service into 25-plus U.S. cities. SocialTrak also offers a variety of online communities that bring together all kinds of people including entrepreneurs, golfers, estate planners and much more. Unlike other social networks, members can create as many profiles as they want while still controlling the privacy settings of each profile.
SocialTrak strives to become the “one stop shop” where members can link and manage other accounts, such as Twitter, Facebook, LinkedIn, YouTube and Flickr, as well as blogs and RSS feeds. The company is developing new applications to increase user experience including web conferencing, email marketing and event planning.
Small businesses, professional organizations, and educational institutions that want to set up their own privately branded networks can partner with SocialTrak to customize, host and manage these networks.
SocialTrak was originally conceptualized when Mr. Lupton wanted to establish a social intranet in his residential complex. Currently self-funded, SocialTrak plans to begin monetizing site traffic through advertising and business partnerships.
About SocialTrak
SocialTrak, Inc., a social network and online community, has a geographic focus and is headquartered in Boston, MA. It was developed to help people network and form relationships in their local area among people with similar interests. SocialTrak is designed to accommodate an expanding number of members as new sub-domains are added across the country. To become a member, visit www.socialtrak.com.
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