eponymousX

The Title of the session: Internet Economy: Startups, Bubbles and Buyouts

Moderator:
Roger McNamee: Managing Director Co-Founder – Elevation Partners

Panel:
Alex Gove, Principal Walden Venture Capital
William C. Park, Entrepreneur – transitioning to new role…
Safa Rashtchy, Managing Director, Sr Internet Analyst, Piper Jaffray & Company
Neil Garfinkel, Partner, Francisco Partners
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Directions from the Mod to the audience:
Small company looking for capital go to Alex
Large companies looking for buyout go to Neil
Looking to sell for stock, go to William
Safa just published a new book. check it out. the cartoons are great.
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Safa starts:
Why am I leaving? More than just healthy growth emerging after “all the activities” are done. More than a phoenix rising from the ashes” of relatively recent (2001) firestorm. “New resurgence in consumerism”.

We have a new economy, call it web 2.0 if you must, but that term is old now. Hot is Search and Social networking. Next wave “help users get done what they need to get done, not just capture eyeballs”

Mod: What is the one thing this audience of people who want to get rich should be paying attention to?
Safa: Spending is done by older people and I think we are ignoring the older generation. Increase Global consumerism.

Mod: Alex, what does the audience need to do to get money from you?
Alex: Online marketing, Lead gen markets are hot – but VC’s are looking for true partnerships, they don’t want to simply be an ATM for entrepreneurs. “…Perhaps the entrepreneur is investing their own money, what we really want is…”

Mod: “Stop, we’re getting into a commercial pitch here”

Alex: Ok, let me try this “…if you have one competitor then you have 3. If you have 3 competitors then you really have 9. If you are very early with a unique new idea, we will listen.

William: We are looking for long term trends. Something that can power a wave of consumerism. Companies that can ride a long wave and not just a short break will attract our attention.

Neil: “… a meshing of cultures and long term goals iss extremely important. People are what differentiate the potential value of combined companies.”

Mod: We’re going to jump into a hole here…reluctance on the part of Advertisers to commit themselves to the web (as opposed to “traditional” media) especially because of the numbers.

Neil: Relevancy and Reach is a part of the primary pitch from Behavioral targeting firms. One limit for BT is how many targets are available. Data volume being collected is larger than the companies have ability to parse in a useful way. (challenges that demographics do outperform BT, until granularity of BT data let’s effective targeting succeed). Granted, BT does outperform Run-of-site.

Safa: “Right now internet usage is still very much like a utility. When I chat in IM, is that the most effective time to target me? It’s like I’m talking on the phone. Would you target me while I’m on the phone?”

Mod: As an entrepreneur, the traditional paths to success are:
1) Create an incredibly valuable product functionality
2) Build a real company framework and make it work, growing through the small and medium sized stages, exit at the end.

Do you have a benchmark that gets you excited about a company?

Alex: Importance of team cannot be under-stressed, but it’s also impossible to predict which features of a company will appeal to a company (like Google). Companies must have UNIQUE assets in order to become one of the chosen few. [anecdotal: Each Google M&A screener looks at 10 companies per day]

William: Companies in the Lead Gen markets are making money hand over fist. Some make 40-50% margins. But the thing that makes us hesitate about investing in this market is the constant risk of Google making changes to their algorithm which impacts the revenue stream of these firms. We can’t take the risk.

Safa: “Defining Lead Gen is difficult” as many companies simply create as large a net as possible to try and capture “leads”. Not all Lead Gen is created equal.

Mod: What are the most effective Lead Gen techniques you see today?

Safa: Actually Search is the best way to qualify Leads because you know more about what the user is trying to achieve.

William: Saw a nice lead gen company focused on the higher education vertical, but they focused only in one vertical.

Mod: there are a lot of lead gen business but they are not all equal in quality of their own processes as well as the leads” they generate.

Neil: “comScore is no more accurate for measuring audience than Nielsen.” I look forward to more accurate targeting in the near future.

Mod: Are “things” coming in your door which are too expensive for the investment market to consider?

Neil: “I’m not sure how you can say things are too expensive? Our returns are still double digit, so things are not yet too expensive, but look backwards. Things are underpriced!

William: On the private equity side, Doubleclick did a very good job of resolving their troubles and rebuilding their value. I’d do all Doubleclick deals if I could. If business is very profitable and growing, hold out for the Doubleclick exit (referring to the $3 Billion buyout.)

Mod: Different types of capital are appropriate for different stages of a company depending on the stage and status the company is in.

General responses to that last aphorism, then question time for the audience….
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I asked the panel: What are the most valuable upcoming categories for Lead Generation, that are not super high value/per lead or super-saturated already. They answered “Education”. I said that was a well known market already. Others in the audience chimed in with ringtones and other “known” markets, nothing new out there…at least no new ideas were forthcoming from the VC’s.

Mod: Great tips. “Start with the big number, work back to the little numbers” in order to hook in an investment bank. “Get your capital in the country where you have the most users.”
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The takeaway:

• Start-ups with bright ideas and very large companies that are well established attract the most attention from people who can offer them money. For VC’s, the middle market, say forty to several hundred million dollars in valuation, is very hard to work with.
• There is no bubble, the current environment is rational, at least where is comes to investment money being handed out.
• Buyouts are rare. To be attractive, be as unique as possible.