Entrepreneurial

The coming brick wall in venture capital

Mark Suster

Jul 20, 2011 06:00 EDT

– Mark Suster is a former serial entrepreneur and a partner at Los Angeles-based venture capital firm GRP Partners. This article originally appeared on Suster’s blog “Both Sides of the Table”. The views expressed are his own. –

This is the final part of a three-part series on the major changes in the structure of the software and the venture capital industries. Read Part One and Part Two.

Or the Cliff Note’s version:

• Open source and cloud computing (led by Amazon) drove down tech startup costs by 90 percent
• The result was a massive increase in startups and a whole group of new funding sources: both angels and “micro VCs”
• With more competition in early-stage many VCs are investing smaller amounts at earlier stages. Some are going later stage to not miss out on hot deals. I call this “stage drift.”
• The opportunities for tech startups today are more immense than they’ve ever been with billions of people now connected to the Internet nearly all the time.

But …

Downsizing Venture Capital

The venture capital business itself is going through an even more fundamental change than just the entry of a new category at the earliest stage. The industry is shrinking back to a mid-90′s level in terms of both dollars and numbers of firms.

The rise of “micro VCs”

Mark Suster

Jul 19, 2011 06:00 EDT

– Mark Suster is a former serial entrepreneur and a partner at Los Angeles-based venture capital firm GRP Partners. This article originally appeared on Suster’s blog “Both Sides of the Table”. The views expressed are his own. –

This is the second in a three-part series on the changes to the software industry over the past decade that has led to changes in the venture capital industry itself. Read Part 1 here.

If you don’t want to read that post, the summary is:

• Open source computing drove computing costs down 90 percent, which spurred innovation in technology
• Open cloud led by Amazon with their AWS services drove total operating costs down by 90 percent. This led to an explosion in startups.
• Amazon in turn led to the formation of an earlier stage of venture capital now led by what I call “micro VCs” who typically invest $250,000 to 500,000 in companies rather than the $5 to $7 million that VCs used to invest.

These trends have put pressure on traditional VCs. Some have done earlier-stage deals and done well. Others have chased earlier-stage but lack the skills or relationships to do this effectively. Some have moved into later stage investments in an effort to “put logos on their websites.”

People are moving into everybody else’s space.

Everybody seems to want what everybody else has. You know the old saying from Harry Met Sally, “I’ll have what she’s having!” This will continue while we’re in a tech bull market and I predict will wane when we’re not.

How the cloud changed venture capitalism

Mark Suster

Jul 18, 2011 06:00 EDT

– Mark Suster is a former serial entrepreneur and a partner at Los Angeles-based venture capital firm GRP Partners. This article originally appeared on Suster’s blog “Both Sides of the Table”. The views expressed are his own. –

In this three-part series I will explore the ways that the venture capital industry has changed over the past five years that I would argue are a direct result of changes in the software industry, not the other way around. Specifically, Amazon has changed our entire industry in profound ways often not attributed strongly enough to them.

I believe the changes to the industry will be lasting rather than temporal change. Venture capital is in the process of its own creative destruction with new market entrants and new models of innovation at the precise moment that our industry itself is contracting.

I will argue that when the dust settles, although we will have fewer firms, each type will end up more focused on traditional stage segments that cater to the core competencies of that firm. The trend of funding anything from the first $25,000 to funding $50 million at a billion-plus valuation is unlikely to last as the skills and style to be effective at all stages are diverse enough to warrant focus.

I will argue that LPs who invest in VC funds will also need to adjust a bit as well.

Rewind

When I built my first company in 1999 it cost $2.5 million in infrastructure just to get started and another $2.5 million in team costs to code, launch, manage, market and sell our software. So it’s not surprising that typical “A rounds” of venture capital were $5 to $10 million. We had to buy Oracle database licenses, UNIX servers, a Sun Solaris operating system, Web servers, load balancers, EMC storage, disk mirrors for redundancy and had to commit to a year-long hosting agreement at places such as Exodus.

The cloud is not just about storage

– Cindy Bates is vice president of Microsoft’s U.S. SMB organization where she is responsible for the company’s end-to-end SMB sales and marketing efforts. The views expressed are her own. –

Have you ever owned something that you didn’t use to its full potential? Perhaps you have a four-wheel drive vehicle that you’ve never taken off the city streets or a digital camera you didn’t know had video capabilities.

The same phenomenon can occur with technology. Take cloud computing, for instance. By now, most small and mid-sized business (SMB) decision makers know they can use the cloud for storage. Hosts of online service providers offer space in the cloud to safely backup business data, and scores of SMBs are taking advantage of this cost-effective way to store data.

However, SMBs aren’t always aware of the cloud’s uses beyond data storage. Yet, cloud computing solutions have advanced to the point where they now provide businesses with a myriad of ways to improve operations. Here are a few examples of what else you could be doing with the cloud:

Improving communication and collaboration. Consider the communication/productivity tools you use everyday – e-mail, phone, chat, contacts, calendars, document creation software and more – deploying cloud-based versions of these programs can give you access to enterprise-level capabilities. You’ll also be well taken care of when it comes to daily troubleshooting as well as more involved IT issues. Instead of worrying about how much it’s going to cost to get support for a critical IT issue that evolves over the weekend, your subscription to the online service may afford you the ability to call a support line and get help within minutes, or reach out to your IT partner for expert help in navigating your issue.

Aisle 7, a marketing services firm based in Portland, Oregon, recently deployed cloud-based productivity software, much to the delight of its employees. Providing powerful integration among all productivity programs, the software helps Aisle 7’s workers save time and communicate more efficiently. They enjoy advanced functionalities that make it easier to see if colleagues are available to collaborate, have Web conferencing tools at their fingertips and can even request time off from any location with an Internet connection. Additionally, the company’s sole IT representative now has a reduced workload and can direct more of his attention to more strategic business priorities.

Creating a better technology platform. If your business provides a Web service to customers or clients, you have a tremendous opportunity to transition your technology platform to the cloud for greater flexibility and reliability. Moving applications to the cloud allows you to scale them up or down depending on your business needs and gives your developers more choice in where and how they manage, deploy and store data.

Cloud technology lifts “accidental” entrepreneur

– Cindy Bates is vice president of Microsoft’s U.S. SMB organization where she is responsible for the company’s end-to-end SMB sales and marketing efforts. The views expressed are her own. –

Recovery from the recession has been frustratingly slow for many whose jobs disappeared as companies shrank or even vanished.  Many have decided to take the plunge and start their own businesses.

This generation of business executives has become known as “accidental entrepreneurs.”  But a recent Microsoft survey discovered their ability to launch and succeed in a business was no accident – it was made possible to a great extent by technology.

The survey found that nearly one-third of the business owners who established their companies during the recession were full-time employees prior to launching business ventures. Half said the recession impacted their decisions to start their own businesses; nearly three-quarters are going it alone, without any employees.

A large proportion of these entrepreneurs reported that technology made it possible for them to start their businesses. In fact, 30 percent said they would have been less likely to start a business without the advantage of today’s technologies.

Now, entrepreneurs are rising to the top in an array of business sectors, all with at least one trait in common: they depend on technology to operate and/or support their companies.

Today’s Web-based (also referred to as “cloud”) computing services do more and are easier to use than ever. Technology has become a strategic part of launching a business, rather than a mere cost center. Entrepreneurs can build their own websites easily, back up and store files in the cloud instead of buying servers, and quickly set up their own networks to connect PCs to collaborate and share documents anywhere at any time. The technology advancements tied to the Web help small businesses afford and access capabilities that were available only in large corporations just a few years ago.

from The Great Debate UK:

The future of computing is in the cloud

-Piers Linney is a self made entrepreneur and former City investment banker. He is currently Joint-Chief Executive Officer at Outsourcery, a leading communications and hosted IT company. The opinions expressed are his own.-

"Cloud computing" can sound like a very amorphous concept, perhaps even conjuring up images of important business data floating around in the skies above us. It often raises questions about control and security. But the reality is a lot more down to earth and it is quite simply the future of computing and the way in which businesses will consume pooled resources of software and hardware.

It is not a technology that is on the way or in "beta testing". Cloud computing uses tried and tested software that is just delivered in a new way. It is already empowering thousands of small and medium-sized enterprises (SMEs) in the UK while saving them money, increasing productivity and allowing them to get on with running their business instead of their IT.

The arrival of cloud computing - where software and hardware is pooled centrally and made available over the internet - has parallels with the early use of electrical power. When industry first started using electricity, each business had to build a generating plant.

This model was replaced with large centralised power stations with electricity distributed using the National Grid network - providing customers with "on-demand" power without any investment or maintenance costs and billing based on only what was used.

My business Outsourcery is a leading provider of communications and cloud computing solutions to 25,000 SMEs in the UK. We have two purpose built data centres, complete with security, 24/7 monitoring, expert staff, redundancy and real time back-up of systems and data across two sites that even most corporations could not afford. If one of our data centres was catastrophically destroyed, our customers would probably not even notice.

I have been involved in many start-ups and SMEs where looking after technology was a constant burden - involving the purchase of expensive servers and software and maintenance support.

Seattle startup looks for customers in the cloud

Jon Cook

Jul 13, 2009 09:27 EDT

What would happen if your laptop was lost, stolen or accidentally dropped in a pool? Would you be able to easily retrieve all the megabytes of precious content housed in its memory banks?

These are the questions that drove Seattle software developer Kory Gill to leave an almost 20-year career at Microsoft and start his own online data-storage company. For years, Gill has sought a Web-based storage solution that would safeguard his priceless family photos, home movies and other important digital data, but never found a single solution that addressed all his specific needs.

“If these are irreplaceable files, you need to have the same type of insurance for your data as you would of any other asset, like your home or car,” said Gill, who often shared his frustrations with friend and fellow Microsoft programmer Marius Nita.

So last June they founded Newline Software, with the goal of giving their customers a more flexible, cost-efficient and “green” alternative to what is currently offered by the major players like Microsoft, Google and Amazon.

THE PITCH

Gill hopes to pioneer the term “eco-digital preservation,” which he said refers to a way of storing data that is both environmentally friendly in that it uses less power, and more economical for customers. Newline Exact is the trademarked software Gill and Nita plan to debut in the upcoming weeks on their website 0xDA.com – the coder term for a hard return, or “new line” on your computer keyboard.