Category Archives: Venture Capital

Reconcentration of Wealth

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A recent development is a further indication of how bad things have gotten in the capital markets.  Large LPs are looking to offload parts of their private equity and venture capital assets, as reported by Henry Blodget.

... some Limited Partners are reportedly urging funds to delay capital calls and reduce fund sizes.
… selling down portions of other asset classes.
… looking to sell private equity assets on the
secondary market, even at drastically reduced prices.

One thing worries me here.  These are sophisticated asset manager doing the selling, in a buyers' market.  So who will be those buyers?  They will likely be sovereign wealth funds, conservative large family offices, and maybe some lucky hedge-funds – the only players with the decision making power and liquidity that would be available to make purchases like this in today's risk-averse environment.  Otherwise, no entity with a large shareholder base will have the guts to make this move.  It's CYA time in those neighborhoods.

The fact that they sellers are smart guys means these were, at least at one time, well thought out investments.  The reality of the buyers' market we're in means that these assets will likely change hands at some discount.

In other words, you have relatively high-quality assets, being sold relatively cheaply, by groups with a diverse shareholder bases (i.e. pension funds, etc.) to buyers who represent narrow shareholder bases (i.e. family offices, hedge funds).

Is this a case of the rich getting richer?  I guess if sovereign wealth funds are buying, it helps diffuse the situation but I can't say I understand how those investment vehicles really work.  It should mean that the fund represents the citizens of a country, which is a very diverse shareholder base, but my skepticism prevents me from buying that argument.

With Friends Like This…

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"We advise against shopping on the internet due to recently increasing fraud cases.  It should not be forgotten that sharing credit card information online can result in serious consequences."

Aydın Agaoglu, President of Turkish Consumers Union (Tuketiciler Birligi)

The above quote was in the Turkish press last week (thanks, Caglar).  I wondered who these jokers were and browsed their website, Tuketiciler.org.  Not surprisingly, the site is not much more than fear mongering and calls for vairous boycotts. 

I invite the Turkish media to be a bit mroe selective in responding to PR requests.

Euro VC

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I participated in two separate VC events last week.  One was a private conference organized by Brains to Ventures, and the other was the Venture Capital Forum organized by EVCA (European Venture Capital Association).  At both events, I was a panelist discussing the VC environment in Turkey.

The B-to-V event was a private event so I can not go into detail on the topic specifics. One could definitely sense the tense mood created by the stressful few weeks in the financial markets, and the recession the global economy is experiencing, yet the conversation was focused on investment opportunities and the upside.

At the EVCA VC Forum, the mood was much more gloomy.  First, I was surprised by how different European and US VC communities are.  In Europe, most VCs come from private equity, banking or accouting backgrounds, whereas in the US, you meet many former entrepreneurs.  The European VC mindset seems focused on down-side protection rather than building great businesses.  Of course I realize I am generalizing and there are some who fall outside of this stereotype, in general, European VC industry appears as if the professionals were primarily picked by prioritizing "those we can trust with our money".

Groups: The Next Generation

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I have been procrastinating writing about the new round of funding for Grou.ps, primarily since it had already been widely reported.  Then, Fred’s post from this morning prompted me to finally post about both the round, and the other critical news from Grou.ps, the open-sourcing of the platform.

Fred’s conclusion is:

So using the less is more mantra, someone should build just that, make
it drop dead simple, and then build the killer API that lets everyone
build on top of that. It may be that the big social nets are in the
best spot to do that. Or maybe not.

Emre Sokullu, the founder and CEO of Grou.ps, commented on Fred’s blog, pointing out that the needs of group members and owners differ, which is a good point and an area that Grou.ps focuses on intently.

Another thing that Grou.ps has made a huge leap in is the open-sourcing of the platform.  This goes beyond the killer API solution Fred offers and is a critical step for wider adoption of Grou.ps.  Some of the proceeds from the new round will go towards opening the whole system, which, according to Emre, will:

  • Commoditize the Grou.ps platform, makes it the natural choice of all online community leaders
  • Give Grou.ps the competitive advantage to hire the most talented and motivated people from the pool of open source contributors.
  • Let everyone create their own modules, share it with the rest of the world
  • Allow the team to rethink their framework and make it even more modular and easily extensible

Grou.ps is already getting a lot of comparisons to Ning as a competitor.  The open-sourcing should help it stay competitive on the technology front.

Congratulations to Emre and the team on the new funding.  I’m also excited to be collaborating with the Golden Horn Ventures team to make Grou.ps a winner in social groupware.

Miracle Fruit of Venture Capital

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A small berry makes everything you eat afterwards make sweeter, as the NY Times reports:

[A] small red berry called miracle fruit …  rewires the way the
palate perceives sour flavors for an hour or so, rendering lemons as
sweet as candy.
…
The cause of the reaction is a protein called miraculin, which binds
with the taste buds and acts as a sweetness inducer when it comes in
contact with acids…
…limes were candied, vinegar resembled apple juice, goat cheese tasted
like cheesecake on the tongue and goat cheese on the throat. Bananas
were just bananas.

The venture capital industry has its own version of these miracle fruits.  In 2005, the miracle fruit was social networking.  In 2006, user-generated content, and in 2007, web video, when mentioned in a business plan, made made it sweeter.

I am not sure what the miracle fruit in 2008 is.  It seems to be a cautious year, so maybe it’s positive cash flow.

Grou.ps Launches US Beta

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Grou.ps launched its US beta today, with an improved UI.  Emre and team have been hard at work on getting the platform ready for this important milestone.  Grou.ps already has some 150K users and a great need identified with Web2.0 services proliferating without any glue to tie them together.  The US market should be a goldmine for them.

Both the TechCrunch and Venture Beat posts reporting the launch point out critical points:

Grou.ps benefits from being simple like Ning and Wetpaint, yet focused
on productivity like Google and Zoho. They present a simple free
solution for moderated online collaboration.

The idea is good: Right now, members of VentureBeat read RSS feeds from
other sites within Google Reader, Bloglines or another RSS reader
service, then chat about them together on a freestanding IM service.
Grou.ps would let you do it all at once, in one place.

Congratulations to the Grou.ps team, and their VC backers, GHV.

“Great” Makes a Difference

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Auren has a good post on the difference truly outstanding people make in an organization, and emphasizes that this is especially true in start-ups.  I could not agree more.  I find that talent often provides the greatest bottleneck in technology start-ups and this is the single most important point in every investment we consider in the Turkish market.

In the process, Auren goes on to identify the only way a start-up can ensure hiring great people:

To me it is amazing how some start-ups choose who they hire – many seem to hire anyone that went to MIT.    That
means they are outsourcing their hiring to the $40k/year admissions
officer at the college who evaluated the person when they were 17!
Do you really want to entrust your hiring to a bureaucrat? This is an
extremely bad strategy. Of course, many people who went to MIT are real
rock-stars and people who went to MIT might be more likely to be
rock-stars than people who went to a lesser-known school, but most are
only good … you need to work to find the great people.

By asking pointed questions and giving tough exercises, you can
determine with high accuracy if someone is really amazing. In fact, I
make it a point not to ask questions like “what do you like to do
outside of work?” It’s better to ask them to solve tough problems and
get to understand their thought-process. Great people have interests
that often converge with what they do at work. At Rapleaf we do at
least four rounds of interviews and we take our time. This means we
occasionally lose some great people, but we err on not having false
positives.

Focusing on assembling a team of great individuals is the single most important area an entrepreneur can focus on.

Information is Power

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Above is one of a few clichés i could have picked for this post.  But, if anyone’s doubting the premise, they can look at the news about Gerson Lehrman‘s new round of funding by Silver Lake, at an $875m valuation.

While i think the high revenues at GL is the fairly elastic demand by hedge funds (i.e. they really tend to be pretty generous with fees charged to them by high quality service providers), this is still a testament to the value of insight.

This news also makes the recently reported LinkedIn valuation rumours make sense.

Congratulations to Mark Gerson and the Gerson Lerhman team.