Archive for the ‘Venture Capital’ Category

Social Networks by Revenue and Employees, Facebook Stands Above All


Facebook HQ
Above: Facebook’s employees hard at work in the open working conditions

As an Industry Analyst my role is to identify trends, market forecasts and publish my findings in research reports. As such, Industry Analysts are different than Financial Analysts, which I’m not. While I cite where I’ve found the data in the comments, I can’t ascertain the accuracy of some of these sometimes 3rd party data sources. Note that the 2012 revenues are reported at a different time from the employee headcount was likely reported (Q1, 2013) The following is not to be considered for investment purposes.

With that caveat behind us, the following analysis takes into consideration the following consumer and public facing consumer social networks.  To see enterprise class and business social business software vendors, see my additional posts on VCs and investing. While many of these startups did not have public available data, I conduct a breakdown of these startups:

Automattic (WordPress), Branch, Digg, Facebook, Foursquare, Gowalla, Groupon, Instagram, LinkedIn, LivingSocial, Pinterest, Reddit, Snapchat, Tumblr, Twitter, Yelp, and Zynga.  Here’s what I found:

2012 Revenue Per Employee
Comparing both revenue per employee, rate, we found some amazing efficiencies, in particular with Facebook, Zynga, and WordPress. Here’s a data table comparing the 2012 reported revenue over employee headcount, found from online public data.

Company 2012 Reported Revenues Employees Revenue Per Employee
Facebook $5,089,000,000 4,619 $1,101,753
Zynga $1,281,267,000 2,916 $439,391
Twitter $350,000,000 900 $388,888
Automattic (WordPress) $45,000,000 150 $300,000
LinkedIn $972,309,000 3,458 $281,176
Groupon $2,330,000,000 10,000 $233,000
LivingSocial $536,000,000 4,500 $119,111
Yelp $137,600,000 1,214 $113,344
Tumblr $13,000,000 151 $86,092
Foursquare $2,000,000 100 $20,000
Nasdaq 100: See how other companies fare Varies Varies Varies

Update: There are many comments coming in about Foursquare revenue, please see comment section, there is additional insights on fundraising, and their focus.

Facebook shows highest revenue per employee
As reported by public available data, Automattic, Zynga, Twitter, and Facebook are all making over $300k per employee, with tech salaries often ranging in 100k range, with additional costs, 300k is a benchmark number for revenue per employee that I often look for. For comparison, Facebook is pushing over $1m per employee, compared to Google (50b revenue for 53k reported employees) is about the same, at $946k per employee.  While WordPress team has a modest $45m their internal revenue per employee stands toe to toe with the big dogs.

Overall industry revenues in billions of dollars
Of these consumer social network, only eight had publically available revenue run rates for 2013, on average, they’re forecasting $3.7b. In total, they’re estimating revenues of $8.3b.  Last year, in 2012, ten of the consumer social network sites had publicly available revenues, which amount of $10.7 billion global revenues, averaged across the ten is $1.7b.

Some social networks boast rapid climb in revenues
These startups saw a rapid climb in revenues, on average these companies started in 2006, just seven years ago.  There were some startling accelerations in revenues, with Facebook achieving $5b in revenues in 8 years, reported by 2012 public revenues. While under business model scrutiny and executive change-up, Groupon started in 2008 and achieved $2.3b in revenues in four years reported in 2012.  Even with this acceleration, Facebook is still far behind Google, which boasts revenues of $50b in 13 years since inception.

Not all startups created equal, some have modest revenues
Many companies are no where near the $1b annual mark, in fact, several players are not on a growth trajectory.  Of the lower revenue performers of the group includes: Foursquare, (a low yield of $2m in revenues 2012), Tumblr blogging software ($13m revenues in 2012), and long time Automattic, the makers of WordPress ($45m revenues in 2012).

Industry workforce, over 28k professionals
We can’t look at revenues alone, as these numbers don’t take costs into accounts, and found that LivingSocial employs 4,500, and surprisingly, Groupon employs a whopping 10,000 employees.  All together, across these 17 consumer social networks, they employed 28,177 professionals.   Obviously, this number doesn’t take into account 3rd party software like social media management systems (SMMS) and digital agencies, consultants, and of course, industry analyst firms.

Coming Soon: Who made returns? Meet the VCs and Investors of the Consumer Social Networks

(creative commons usage of image by Jakob Steinschaden)

Winner Circle: The Social Business VCs Who Achieved Material Events


Kentucky Speedway winners circle

The purpose of this post is to identify investors who have had a material event (IPO or acquisition) in the Social Business Software space. Read my other posts in this series tagged VC.

Our continued research over VCs and investors in the market continues, yesterday, I presented highlights at the Corporate Venturing Innovation conference, and showed the highlights to LPs and Corporate Bankers of who’s making bets –and who’s winning. The following data was also covered in PEHub, and generating interest from entrepreneurs seeking funding. As an Industry Analyst, it’s key that we understand consumer behaviors, business adoption, and startups, but also funding patterns as they influence startup growth or stagnation.

Scope of Research and Methods

  • Definition of Social Business Software: SaaS based software companies that provide social software to corporations to use. Popular names include Jive, Buddy Media, Radian6, Lithium, Hootsuite. This does not include consumer social networks like Facebook and Twitter, a report I’ll publish in near future.
  • VC, Investor, Angel: These are all investors in the Social Business Software spaces. They often receive money from LPs (Limited Partners) who charge them for investing in markets. On average, VC firms have a 1-3% management fee of overall fund they manage, and have a carry of 10-30% of total take of return from a fund.
  • Altimeter conducted analysis of a data set of 55 Social Business Software companies (see list here) in Dec, and has not updated data set to reflect recent funding events, including Sprinklr, Spredfast this week.
  • One caveat that applies to all the following data, we cannot determine specific amount of which VC firm or investor has put into each round of investment. Even within the financial S-1 docs there’s cloudy wording on which firm put in what amount.

VCs are a key component of startups, they provide council, open doors, and can even help with auxiliary functions like recruiting, conferences, and biz dev relationships. Savvy VCs are doing value add beyond the check, and are starting to couple their portfolio together to build larger networks. Knowing which investor has blessed a startup is key, as it demonstrates confidence in the business model, executive team, and product roadmap. Buyers of social business should ask five key questions of startups about their investors. With that said, having investors is not a requirement, as one-third of startups did not take in investment as they can often go it alone.

Winner Circle: Social Business VCs Achieving Material Events
The following lists the startups with exit, and we listed each round of funding and who’s the investors:

Buddy Media (Acquisition)
Buddy Media acquired for an estimated $689M (source), raised a total of

  • $5M WPP Digital
  • $1.5M Roger Ehrenberg, James Altucher, Howard Lindzon, Peter Thiel, Mark Pincus
  • $6.5M SoftBank Capital, Greycroft Partners, European Founders Fund, Ron Conway
  • $23M SoftBank Capital, Greycroft Partners, Institutional Ventures, Bay Partners
  • $54M Institutional Ventures, Bay Partners, GGV Capital, Insight Ventures

CoTweet (Acquisition)
Acquired for apparently $8.1m (source)

  • $1.1M Founders Fund, Baseline Ventures, First Round Capital, Freestyle Capital, SV Angel, Floodgate Fund

Vitrue (Acquisition)
Acquired for an estimated $300M (source)

  • $2.2M General Catalyst Partners
  • $3.8M General Catalyst Partners, Comcast Ventures, Turner Broadcasting,
  • $10M General Catalyst Partners, Comcast Ventures, Dace Ventures
  • $17M General Catalyst Partners, Dace Ventures, Scale Venture Partners, Advent Venture Partners

Wildfire (Acquisition)
WildFire acquired for an estimated $350M, with $100m retention bonus (source)

  • $100K fbFund
  • $4M Summit Partners, Jeff Clavier, Gary Vaynerchuk, 500 Startups, Felicis Ventures
  • $10M Summit Partners

Radian6 (Acquisition)
Acquired for an estimated $326m (source)

  • $4M BDC Venture Capital, Brightspark Ventures, Summerhill Venture Partners
  • $5M BDC Venture Capital, Brightspark Ventures, Summerhill Venture Partners

Jive (IPO)
Market Cap. at $161M; currently at market cap of $994.91M and $15.47 share price as of 2/1/2013

  • $15M Sequoia Capital
  • $12M Sequoia Capital
  • $30M Sequoia Capital, Kleiner Perkins Caufield & Byers

BazaarVoice (IPO)
Market Cap. at $114M; currently at market cap of $560.19M and $7.84 share price as of 2/1/2013

  • $4M Austin Ventures, Constantin Partners, First Round Capital
  • $8.8M Austin Ventures, Constantin Partners, First Round Capital, Battery Ventures
  • $7.1M Austin Ventures, Constantin Partners, Battery Ventures

First Round Capital (coincidentally, not from CA, although with SF offices) leads the pack with 2 material events, including investing two rounds in BazaarVoice with a double down. Sequoia bet hard on Jive, and yielded a strong IPO, and Jive posted a strong year with over $104 million in billings for 2011, Austin Ventures continues to be the leader in frequency of bets in social business, but also was involved in BazaarVoice IPO  The following firms had one material event, and invested in one startup, in two rounds:  Austin Ventures, Battery Ventures, Bay Partners, BDC Venture Capital, Brightspark Capital, Comcast Ventures, Constantin Partners, General Catalyst Partners, Greycroft Partners, Institutional Partners, Sequoia, SoftBank, Sommerhill Venture Partners, Summit Partners.  

There’s 20 other folks listed above, including angels that are too numerous to list, but I’ve segmented funding frequency by round on a prior report.  There doesn’t appear to be any clear lucky streak among this investment class, although First Round has also heavily invested in Gigya in later stage rounds, so it would be key to watch their movements as they continue to grow.  This is just a snapshot in time, and while IPO market is unfavorable now, expect most exits to closely tie to M&A this spring, before the large software companies go on their conference tour of a larger suite.  Expect additional M&A to happen this year, although IPOs will be fewer and far between in 2013 in social business software.

Stay tuned for future analysis on VC impacts on consumer social networks.

Photo used under Flickr Creative Commons by Haglundc

Meet the Investors of Social Business


The purpose of this post is to identify which investors are most active in Social Business, and segment them from early to late stage funding.

I frequently provide due diligence calls to VCs, and also advise startups on their growth startup in highly saturated growth markets.  To hone my industry interactions, I’m publishing data on my continued research on funding in the Social Business space (read other posts on the state of funding in social business, and rate of material event or click the VC category to see all posts).  The investors are a key factor in the success of a startup, they advise, provide resources for rapid growth, influence a sale or IPO, or can cause a startup to be stymied by innovation through interfering with the executive team.  To best understand how investors have influenced the Social Business Software space, we’ve conducted analysis to derive patterns of investors.

[Austin Ventures, Benchmark, and First Round Capital lead the Social Business Software Funding in Frequency of Investments]

Funding in the Social Business Software space spurred market traction over the last 5 years, often creating a set of clones with limited feature differentiation.  Across all stage investments, Austin Ventures showed dominance in frequency of investing in funds, although their total amount of funding is not public record.  As expected, there was a plethora of Angel Investors as companies were just getting out of the garage (sub $1m investment).  In early stage funds ($1-5M), Austin Ventures, First Round, Floodgate, were the most active.  In mid-stage ($5-10m) Battery and First Round showed increased frequency over other investors, in late-stage ($10-20m), Benchmark Capital was frequently involved, and at mature stage (over $20m), Bay Partners and Institutional Ventures were most frequently involved.  Entrepreneurs should use these tables to identify ideal investors per startup maturity to reduce time in seeking institutional funding.

Scope and Method of Research 

  • Definition of Social Business Software:  SaaS based software companies that provide social software to corporations to use.  Popular names include Jive, Buddy Media, Radian6, Lithium, Hootsuite.  This does not include consumer social networks like Facebook and Twitter, a report I’ll publish in near future.
  • Definition of VC, Investor, Angel: These are all investors in the Social Business Software spaces.  They often receive money from LPs (Limited Partners) who charge them for investing in markets.  On average, VC firms have a 1-3% management fee of overall fund they manage, and have a carry of 10-30% of total take of return from a fund.
  • Altimeter conducted analysis of a data set of 55 Social Business Software companies (see list here) in Dec, and has not updated data set to reflect recent funding events, including Sprinklr, Spredfast this week.
  • One caveat that applies to all the following data, we cannot determine specific amount of which VC firm or investor has put into each round of investment.  Even within the financial S-1 docs there’s cloudy wording on which firm put in what amount.

Frequency of VC funding in Social Business Software
(Figure 1:) Overall Highest Frequency Investors: Austin Ventures, Benchmark, and First Round have invested most frequently
The following VC firms have invested in the most rounds of Social Business Software vendors, as stated in above caveat, this does include total amount invested, only frequency.  Austin, Benchmark and First Round have invested the most frequently, across all stages of funding.

VC Firm Total Rounds Involved In
Austin Ventures 7
Benchmark 7
First Round Capital 7
Battery Ventures 5
New Enterprise Associates 5
Norwest Venture Partners 5
Novak Biddle Venture Partners 5
Sequoia Capital 5
DAG Ventures 4
Emergence Capital Partners 4
General Catalyst Partners 4
Mayfield Fund 4
Shasta Ventures 4
Trident Capital 4

(Figure 2)  Angel Investors: VCs that invested in rounds under $1M in Social Business Software
We found 18 investors that invested in Social Business Software cateogry under 1 million, while many are individual angel investors, there are a few firms involved, and even Facebook’s fund which invested in early startups to grow the application platform.  I often have observed that some of these CEOs have self-invested in their own companies.  These investors often provide key advice to helping entrepreneurs launch their company. None of them invested more than once in under a 1 milion round, per public records.  

VC Firm or Individual Rounds involved in under $1M
Colin Evans 1
Diego Canoso 1
Eden Ventures 1
fbFund 1
ff Venture Capital 1
Hillsven Capital 1
Joe Lonsdale 1
John Levinson 1
Joshua Stylman 1
Lightbank 1
Mayynard Webb 1
Paige Craig 1
Peter Hershberg 1
Seedcamp 1
Shane Spitzer 1
Travis Kalanick 1
Vince Broady 1
Zelkova Ventures 1

(Figure 3)  Early Stage Investors: VCs that invested multiple times in $1-5m rounds in Social Business Software

These early stage, post-seed/angel helps companies to get their proof of concept to the market by hiring additional engineers, operations, sales, and account teams.  Austin Ventures, First Round, Floodgate, was involved in a number of early stage investments.  Often these rounds involved multiple VC firms in each round for a startup.
VC Firm Rounds involved in $1M – $5M
Austin Ventures 4
First Round Capital 3
Floodgate 3
Adobe Ventures 2
Anthem Venture Partners 2
Battery Ventures 2
BDC Venture Capital 2
Brightspark Ventures 2
DFJ Esprit 2
DFJ Frontier 2
General Catalyst Partners 2
Granite Ventures 2
Metamorphic Ventures 2
Novak Biddle Venture Partners 2
RPM Ventures 2
Summerhill Venture Partners 2
TEF3 2

(Figure 4) Mid-Stage Betters: VCs that invested multiple times in $5-10m rounds in Social Business Software

Often referenced to me as A-B rounds, these early stage rounds are for a company to expand operations, sales, or hire developer teams beyond initial product proof of concept. Battery and First Round were most involved in rounds in the mid-stage, which often involved multiple VC firms in each round for a startup.

VC Firm Rounds involved in $5M – $10M
Battery Ventures 3
First Round Capital 3
Austin Ventures 2
Benchmark 2
Constantin Partners 2
Mayfield Fund 2
Norwest Venture Partners 2
Redpoint Ventures 2
Shasta Ventures 2
Trident Capital 2

(Figure 5) Late Stage Investors: VCs that invested in $10-20m rounds in Social Business Software

I hear this referred to as B-C rounds, and often touted as growth stage money, these companies often have hit an elbow in revenue or user growth rates.  Benchmark Capital was involved in the most late stage investments, followed by a series of other players.  I’ve found that I most often interact with investors in this category, as they’re tracking a crowded market and seek analyst input in due diligence meetings. Often, these rounds involved multiple investors.

VC Firm or Individual Rounds involved in $10M – $20M
Benchmark 4
DAG Ventures 3
Emergence Capital Partners 3
New Enterprise Associates 3
Sequoia Capital 3
Mayfield Fund 2
Novak Biddle Venture Partners 2
Scale Venture Partners 2
Shasta Ventures 2
Advance Publication 1
Advent Venture Partners 1
Austin Ventures 1
Credit Suisse 1
Dace Ventures 1
El Dorado 1
First Round Capital 1
FTV Capital 1
General Catalyst Partners 1
Institutional Ventures 1
Intel Capital 1
InterWest Partners 1
JK&B Capital 1
Nigel Morris 1
Norwest Venture Partners 1
OMERS Ventures 1
Ron Conway 1
Steve Case 1
Sutter Hill Ventures 1
Ted Leonsis 1
Tenaya Capital 1
Trinity 1

(Figure 6) Mature Stage Investors : VCs that invested in rounds over $20m in Social Business Software

Often called the valuation stage or ‘pump’ stage investments at this round often are designed to increase an already successful startup’s valuation by raising capital, in prep for a material event or for acquiring competitors.  At this stage, most companies are showing 200-400% growth rates, and it’s often a sure bet for investors to see a return.  These investors often have ties to bankers, brokers, and can help see a material event though, due to experience. Bay Partners and Institutional Ventures, which are not common in earlier rounds, show being involved in two rounds.
VC Firm Rounds involved in $20+M
Bay Partners 2
Institutional Ventures 2
ABS Capital Partners 1
El Dorado 1
GGV Capital 1
Greycroft Partners 1
Insight Ventures 1
InterWest Partners 1
Kleiner Perkins Caufield & Byers 1
Michael Scissons 1
New Enterprise Associates 1
Norwest Venture Partners 1
SAP Ventures 1
Sequoia Capital 1
SoftBank Capital 1
Syncapse 1
Trident Capital 1
Trinity 1
Val Katayev 1


While not all startups took funding, the venture community is a key component of the social business software category, accelerating growth, jobs, and innovation. Startups should identify which VCs are best fits for their investment strategy, based on maturity and needs.  Most VCs are segmented by different stages of investing, with different value propositions to startups beyond money.  Buyers who’re purchasing social business software should understand the deeper relationship of investors and the startups in which they’re purchasing.

18% Social Business Software Achieved a Material Event –VCs Not Required


Executive Summary
Research has found that out of 55 Social Business Startups that a majority (69%) have received early and late stage funding, averaging $14m in total funding.  A significant 31% have not taken investor funding, which we’ve listed 6 reasons ranging low costs of operations, self-funding, VC avoidance, and market saturation of startups.  18% of startups had achieved a material event (acquired or IPO) and of them, 40% we’re not funded.  Expect three macro trends in 2013 including: 1) Startups focus on business value to battle software giants, 2) Investors hot on SMMS market, but wary of vendors who lack differentiation, and 3) As Social Business Software market matures, expect growth in late stage investments

Research Background
I’m continuing industry analysis of Social Business Software funding and will do a series of data cuts from my sample of 55 software vendors to tease apart trends, insights, and built a forecast for what is to come. First, read part one on The State of Social Business Software (including methodology of this study), which dissects into funding amounts, averages, and frequency of funding rounds.  I interact with VCs, startup entrepreneurs, software giants, brand buyers, press and media to obtain multiple points of view.

Screen Shot 2013-01-10 at 5.15.31 PM
Above: Figure indicates that while two-thirds were funded, a large set of social business software vendors were not funded, a rate greater than I expected to see.

Of Social Software Startups Funded, Most Raised less than $10m
Above: Of the two-thirds who were funded, a majority of them raised a small amount of money, most commonly under $10m, a paltry amount compared to funding rounds in other tech categories in prior decades.

Screen Shot 2013-01-10 at 5.15.14 PM
Above:  The industry ratio of 18% of startups achieve a material event, still holds as an industry benchmark.  I found that consumer based startups may have a lower rate of material event, but with larger returns.   Interestingly, 40% of those who achieved a material had no public records of funding from angel, seed, or venture investors.

Key Data Points
After cutting/comparing/probing this data sample of Social Business Startups (not consumer startups like Facebook, Instagram, Twitter) the following data points were discovered:

  • A total of 55 Social Business Software Vendors were selected for this sample set.
  • 17 (31%) did not take funding per our searchers on public websites, press releases, S-1 filings and Crunchbase.
  • 38 (or 69%) were funded in public records listed as Angel, Seed, or various Venture Rounds
  • Of the 55 startups, 17 we’re not funded, and the majority who we’re funded (16) received less than $10m in total funding
  • 7 startups were acquired by larger corporations (Buddy Media/Radian6 to Salesforce, Context Optional to Adobe, Viture/Involver to Oracle, etc)
  • 3 startups achieved IPO (Liveworld, Bazaarvoice, Jive)
  • A total of 10/55 (18%) of startups have achieved a material event.
  • 6/10 (60%) of the startups who achieved a material event (IPO, Acquired) were funded.
  • Of the 6 startups who achieved a material event, they averaged total funding amount of $26.3 million.
  • Of the 6 startups who achieved a material event, the largest round raised was Buddy Media’s D-Round at $54 million.

Material Events, defined, debated.
For the purposes of this report I’m defining a material event such as an acquisition by another company or IPO for publicly traded shares.  There have been many arguments made that successful companies do not need a material events, if they can yield consistent dividends to investors.  The challenge is that the venture model requires multiples returned per fund to LPs in order to raise monies for future funds.  VCs tell me “You’re only as good as your last fund” and with fund management being 5-10 years, there’s a time clock on returns, causing pressure on executive teams to achieve a material event.  It’s also worth noting that in some cases, an acqusition occurs because a company is distressed and is auctioned as a fire sale.

Nearly One-Third of Startups Avoided Funding
While over 2/3rds of startups took funding, a surprising 17 (31%) did not take funding in the form of seed, angel, or venture funding (A, B, C, D, rounds).  This number is shockingly high, as in previous decades tech startups were dependent on Sand Hill investors to anoint companies to market.  Today’s market has changed and startups are not dependent on VCs.  Even of those who achieved a material event, 4/10 (40%) did not have funding.  There are six primary drivers why entrepreneurs have confided in my why they don’t take funding

Six Reasons why Startups Don’t Obtain Investor Funding
In near future, I’ll post why 60% of startups prefer funding, surprisingly, it’s not just about the money.  

Reason Description What Entrepreneurs Don’t Tell Anyone
1) Self Funded In most cases where I see self-funded startups, often the executive team are self-funding from prior wins as a serial entrepreneur. This means more money for them, control. In some cases, the serial entrepreneurs I’ve met are doing this company both for personal accomplishment, fun, and are no longer driven by monetary gain alone.
2) Company Too Early Stage A large portion of startups in our sample set were early stage, (many in SMMS market) who do not yet need expansion and growth funds. In some of these crowded markets, they’re struggling to get favorable terms as first time entrepreneurs, slow growth, or in a crowded market.
3) Low Costs to Start Company Today’s startup needs a few 10’s of thousands of dollars to get going, with recurring SaaS licence revenues, they can sustain after one year of landing a few key brands. Cloud technologies, open source, virtual workforces, and overseas developers make today’s startup a low cost.
4) Seek Lifestyle Company Often a controversial discussion in tech circles, many entrepreneurs want to avoid pressures of a material event put on them by investors Being an entrepreneur is tough work, when your company does well, the board may want the founder out, requiring them to go to beach get board, and get itch to restart. An addictive, never ending cycle.
5) VC Avoidance Unfavorable terms, pushy board members, or lack of value-add cause entrepreneurs to shudder. Additionally, the time required to pitch, negotiate, expose secret plans, and deal with new influencers on board a risk if they don’t see eye-to-eye. Many serial entrepreneurs confide that they’ve been burned by VCs in the past, and as a result seek to avoid them as long as possible.
6) The Startup is a Bust Some startups are clones, unoriginal, and will not succeed and VCs simply know a failure when they see it.  In fact, we track 28 SMMS vendors in the active market. Entrepreneurs are prone to bluntly admitting this.  Instead, expect euphemisms such as “strategic roadmap pivot to respond to changing market conditions”. ahem.


Market Trends: 2013 Social Business Software and Funding
 Expect three macro trends in 2013 when it comes to social business software, their buyers, investors and last year’s activity, they include:

  • Startups focus on business value to battle software giants. Have At the high level, social business startups must focus on value creation and market domination as after the rash of M&A in 2012 (Adobe, Oracle, Salesforce, Google), this has left an opening for independents to build value while blue chip software companies re-tool and figure out their suite strategy up until the second half of 2013.  With the IPO exit taking a major beating from Facebook, Groupon, Zynga, and questionable results from Bazaarvoice, social business startups must focus on recurring revenues through business value to clients.
  • Investors hot on SMMS market, but wary of vendors who lack differentiation.  While the brand monitoring, community platform, ratings and reviews space has already consolidated, VCs look at SMMS market, despite a handful of acquisitions.  My time on Sand Hill road has yielded excitement and hesitation from VCs examining the fast growing –yet crowded– social media management systems space.  Expect SMMS vendors who can achieve market differentiation and integration with larger blue chip software players to be ideal for investor funding –our findings indicate the market is not strong at differentiation.
  • As Social Business Software market matures, expect growth in late stage investments.  There’s room for independent players who’ve not yet been acquired to land and expand their enterprise clients, some claiming 400 year over year growth in revenue run rates as social licenses are spread enterprise-wide.  As these companies seek funding to grow in international markets, hire seasoned enterprise sales and account teams and acquire smaller competitors, they’ll need late stage investing over $10m, which bolsters overall valuation before a material event.

Future reports to come: We’ll explore status of top funded investments, which VCs are most active in funding Social Business Software, and other data cuts.

Beyond the Money: Some VCs Provide Startups With A Competitive Edge


Surprisingly, some of the most important resources from a VC isn’t the financial funding.

When I meet with startups I find it helpful to find out who their investor is, secondly, it’s important to watch how VCs are funding, as it impacts what type of technologies we’ll see in the next few months. I don’t know as much as I want to about the VC world, so when I have questions I turn to Jennifer Jones, just this weekend we were engaged in the topic of the overall value that VCs bring. No, not just the money aspect, but the other intangible benefits, as VCs provide several intangible services to their portfolio companies, as I understand it, they include:

VCs Provide Startups With A Competitive Edge by Offering Additional Services:

Thought Leadership
VCs are required to anticipate future trends, and as a result they are highly connected, obtain information from a variety of sources, and have to quickly synthesize what’s next. Some of the VCs are more active in public, and are on the speaking circuit, and are sharing their ideas. Take for example David Hornick, who does a great job at this as he discusses why and how he’ll invest the $650mm they raised in high tech. Considering the recession this fund will fuel a great deal of innovation –even during a downturn.

Strategic Guidance
Often, VCs sit on the Board of Directors of their portfolio companies and provide guidance, direction, and access to other decision makers. This not only protects the VC to keep an eye on the company, but gives the entrepreneurs a chance to bounce ideas off senior and seasoned investors.

Being Part of The Family
Access is important. When I meet with startups, it’s important to know who invested in them, as it indicates their network. If you watch carefully (real carefully) you can see that startups that share the same investor use each others products, exchange executives, and are talking to each other. They often have offsites

Ancillary Services
Some VC firms have education teams and marketing teams that provide a broad range of services to the portfolio companies who don’t have the resources to hire full time marketing staff. In fact, I’ll be doing a workshop with Giovanni Rodriguez in the near future for a VC group. Recently I held a dinner discussion with Allegis capital and Scale Venture Partners, to meet their portfolio and discuss market trends.

Umbrella Branding
Perhaps the most under utilized is the benefit of being part of the brand of a well known firm. There are certain firms that are known for investing in certain verticals, or have a track record of success that lights my eyes up. Companies often tout their investors in briefings, especially if they are a top tier firm.

Parties… eerr um Networking
Ok, that’s my polite way of saying great parties, well networking too. During the height of the economy, some VC firms flew the executives of their portfolio companies out to a one week retreat in Hawaii. Also, some of the best parties in all of Silicon Valley are at August capital –social media networking nirvana.

Recruiting and Fundraising
I added this bullet after the fact, after seeing how David Hornick has added to the conversation it’s too important to pass up. VCs offer additional services like recruiting, which I’d be so bold to say is often executive placement of the right folks. Secondly, they help with fundraising, which I would assume would be for additional rounds of investment, I would expect that this would often mean a solid reference from one investor to the next.

Entrepreneurs should weigh all benefits
Of course, with the top tier VC firms, there are certainly considerations, getting backed by a very successful VC firm may mean they have more influence over the terms, may drive the direction of your company, and ultimately, may have more equity of the company. I encourage you to think about the other services, network, and events that your VC will offer you, find out by observing or talking to companies in their portfolio.

VCs offer more than just funding
VC should continue to provide thought leadership in their space, discussing in public why they are raising money, where they anticipate market growth, and how they plan to invest. This not only attracts new investors for their fund, but gives branding cover for their portfolio, and the folks in the industry, like me, visibility on the next trends. What they do beyond the investment makes a different –I can see it.

Wrapup: What’s on the mind of VCs, Entrepreneurs, and Industry Analysts


Left: Scale Venture Partners brought VPs of Marketing, CMOs and founders portfolio clients to meet with me last week.

When we think of influencer groups in the social media space, we often think of top bloggers like Techcrunch, RWW, GigaOm, Fast Company, Cnet, yet there’s a whole ‘nother influence group that rarely gets ink –I’m starting to spend more time with them as it helps me to better understand the space.

An inconspicuous influencer group . The last seven business days have been intensive full day sessions with vendors for my upcoming Forrester Wave research on community platforms. I’m always energized by the fire in the eyes and the passion that comes through when talking to founders and entrepreneurs. Sadly, a problem for entrepreneurs is that they often get tunnel-vision and forget to look up outside of the lab at the greater market, fortunately, they should have VCs (who often sit on their board) that help them to see further, connect deals, and provide guidance.

The interesting thing about VCs is how incredibly powerful they are in our space. Compared to the excessive noise in our industry, tou don’t hear too much out of the mouths of VCs, but believe me they are extremely powerful. Aside from the obvious power from control of funding for investments, they can influence the direction of their portfolio companies, and foster relationships between different companies. VCs influence the sellers, in my market, these are the startups.

On the other hand, industry analysts, while do have some influence over startups, have an even stronger relationships with the buyers, (and media) in this case is the the Fortune 5000 companies that seek help to make decisions on how to organize their company, staff, budget and deploy social computing.

VCs and Analysts are on a quest to answer the same questions
Despite these different takes on the same market, VCs and industry analysts are answering the same questions: 1) What’s going to matter in the future? 2) Who’s going to do it? In fact, while the methodology differs slightly, both analysts and VCs are conducting research, taking in pitches and briefs, and finding out what others think of companies before they fund or recommend them.

Given the similiar goals, last week, my long term friend Jennifer Jones, a marketing expert who is known for her work with VCs such as Mayfield, Versant Ventures, Scale Venture Partners, and Levensohn is my go to guide to meeting these folks. In fact she helped coordinate a dinner between myself and Scale Venture Partners with a handful of their web portfolio companies (VPs, CMOs, CEOs and founders) and potential investments. So what did we talk about?

Over dinner we discussed that:

  • We all see the same direction of the social web, the social graph is going to separate and be available from many different websites.
    Micromedia tools are powerful for support and marketing, but monetization is still a mystery.
  • Jokingly, Microsoft and Yahoo aren’t known for innovation and flexibility, yet we are in awe with Google, Apple, and Facebook.
    There are too many players in the space due to commodity technology, the need for segmentation and stratifcation is needed.
  • Funding for social media in the marketing space slowly grows as it gets pulled from other traditional marketing channels, many are looking at where other buckets of money can come from within the enterprise in IT, HR, and maybe even Sales.
  • There’s a need to bring the varying vendors together for roundtables to discuss how data will be shared from site to site as the entire web becomes more social.
  • Analyst/VC dinners
    As you can tell, we all learned alot from this trifecta of entrepreneurs, VCs and industry analysts; it was healthy to bring forward a larger part of the ecosystem to share with each other. VCs also want to demonstrate to their investments and investors that they’re highly connected, influential, and have a broad set of connections. Jennifer is setting up some future VC/Entrepreneur/Analyst dinners, if you’re a VC firm and want to participate, I recommend you contact her, as I’ll be spending more time with this powerful influence group as I move forward, it gives me a greater viewpoint to how the market is shaping for my research as well as providing portfolios with access to brief analysts on what they’re working on.