Posts

After being here for awhile I am starting to get a grip on what is going on in the Venture Capital world here in the Silicon Valley. The Venture Capital funds are going through a tough period at the moment. There are still a number of investments being made (and compared to Europe there still a higher volume of VC funding being done).

So what have happened? The US VC industry raised over 100 B USD for their funds in the past 3 years, but investment volume has declined dramatically (1/6 annualised in 2009 compared to 2008), so many of the Silicon Valley VC’s have a great deal of cash to invest (but there are exceptions to this of course).

What has changed is the willingnes to take risk, most VC’s are currently acting out of the uncertainty of future, will the US VC industry be able to keep raising an average in of 30B – 35B USD per year for their funds?

And…

How long will they have to support their current investment portfolio companies?

And this last question is the real pressing one for most investors here in Silicon Valley.

What happened is that the VC firm’s exit pipeline has dried out, due to a number of factors, IPO’s are tuffer, caused not only by the credit crunch but also due to the Sarbanes-Oxley act creating overhead (which means IPO’s at later stages), the M&A pipline is pretty dry as well. Even though some of the big corporations actually do have large cash positions to acquire companies (or liquid shares to pay with), they are pressing the valuations down due to the tuffer IPO climate.

A real interesting opportunity at the moment here in the Valley is alternative exit path’s, however you can create them. And what we are talking about is a way for the VC’s to sell their positions in their portfolio companies, not necessarily over the stock market, but to other parties that are not typical M&Q deals, but rather new investors buying them out.

So here is a great business opportunity for alternative and new solutions for this, one is Tim Drapers Xchange (that I wrote about a few weeks ago), if I was in the investment banking industry or connected with the big long-term investment funds, I would start a new company to target this. I would not build an alternative trading marketing such as XChange, but instead look at how I can connect the VC’s to longer to these term investors.

I always try to think about opportunities when the going gets though. So in the economic crisis time 2008 and 2009 have turned out to be, what are you todo?

I think when things are though, and problems are real and hard, is when the entrepreneurs get to work. And create brilliant business, solve it.

The credit crunch combined with the though regulatory framework here in the US, has really halted the Silicon Valley IPO’s. The other week OpenTable went public, and was off to a good start (59% up in the first day), but this was really the first Silicon Valley IPO in about 1,5 year.

But the exit-path for angel investors and VC’s is still very though, and this also means it’s tough, to use stock-option programs to keep the talent in the startups here in the valley.

This has created a number of new exit paths, and liquidity platforms for the startups, one of which is Tim Draper’s Xchange, Inc. To be traded here on the XPO (XChange Private Offering), you need to have at least $ 20 M in revenues, and there is a large number of potential companies that are interested.The XPO uses a Dutch auction system to set the prices (a very interesting touch IMHO). Companies with less than € 20 M in revenues are restriced to the XIQ (XChange InQuest) , which is less of an trading platform, and more of a buyer/seller matching platform, simply put somewhat like an classified ad board for shares (the difference in effect is small, except the dutch auction style pricing, but I guess the regulatory issues might be quite different between these two).

It will be interesting to follow this development, and I think there is much room for more players in this segment, all from very small cap companies to more large cap companies on different trading platforms, with companies in different stages of risk. Much as we have seen in Sweden’s many small cap trading lists, with both some really good results (with mobile tech companies such as MobiSpine (on AktieTorget) and some examples that have had some controversy to it.

Here in the US (and Silicon Valley) I think it all depends on how SEC and the new administration will see these things. As something that spark glow into healthy parts of the economy eco-system, or as something that needs to be heavy regulated.

UPDATED: Some feedback Tim Draper (the company name is actually XChange not Exchanged, my mistake), and I elaborated a bit on the difference between XPO and XIQ offered by XChange, Inc.

I have had a break in the blog posts, due to getting over to the US and getting settled, but also because being so busy over here.

So I am now in the Valley, that is Silicon Valley. I am slowing getting settled with everything, and getting some traction behind my different projects with-in BootstrapLabs (such as Prezi). It’s Friday afternoon, and pretty tired, I have had a very productive week with some very good meeting with everything from CTO’s in some top companies to Entrepreneurs and founders of some of the most well-known Internet startups in the valley.

I see great progress for the first initial companies that BootstrapLabs is bringing over to the valley from Europe

BootstrapLabs has got it’s office now in Redwood City, and I am working with some people here in the valley to build a very interesting incubator model with associated business development activities.

I think we will be able to offer an very attractive model for companies to get established in the valley and get successful.

All and all, a great few weeks, I hit the ground running and is still trying to get some orientation of everything that is happening. I am having great fun, and the wheather have been terrific (28-35 C during the days), besides the amazing people and business climate.

Today I received an e-mail from the CEO of my US bank.

Sometimes it seems like I collect banks, and you might need to when you are a parallel entrepreneur with companies in different parts of the world. So to say the least I have some experience with banks and how they work with your personal finances as an entrepreneur and as a entrepreneur or CEO of a early stage company.

I will not quote the complete e-mail (because it was probably not intended for wider distribution), but a short excerpt shows SVB’s focus:


We remain focused on our mission to help entrepreneurial companies succeed and have taken the necessary steps to ensure we are able to continue to do so. ….. We see it both as our responsibility, and our opportunity.

In these challenging economic times, know that we are here for you and will do our best to help you succeed. I believe open and frequent communication is hugely important, particularly in times like these, so please don’t hesitate to let us know how we can help your company and we will keep you updated on our perspective as well. We thank you for your business and continued support.

If any of you early-stage entrepreneurs reading this have dealt with UK or Swedish banks for your company, you know that this is not the message they will send you. Especially in these times.

The bank is Silicon Valley Bank, which is committed to working with entrepreneurial companies, and have built a successful business around this for the past 25 years.

This is just one part of the entrepreneurial eco-system that is Silicon Valley, and I am glad to soon be part of it full-time (move is planned for beginning of March!), with my new bootstrapLabs venture, where I will continue my serial and parallel entrepreneurship to create new companies, and bring new products and innovations to the market.

Just saw this video, from the LeWeb this week:

that I found here where Michael Arrington writes:

But Europe’s persistent background pessimism was out in full force, even at an event full of entrepreneurs. Americans dominated the stage and spoke mostly about the tremendous opportunities that arise in down markets. Engineers are much easier to hire. The press have fewer startups and stories to divide their attention. The pond certainly gets smaller, but there are far fewer people fishing, too. For most startups, this is a time to blossom.

He got a point, for the past almost 10 years that I have been going to the US for business trips once, twice or three times a year and visited Silicon Valley frequently, I always felt that Silicon Valley is very meritocratic, and that if I would surround myself with the like minded people that I meet there, I will be able to achieve more.

Now not to say that I don’t enjoy long lunches and good wine, I do, but I rather see it as work-hard and play-hard, I don’t do when my schedule is tight, on the contrary, when I know there is a lot of things I can do to move things forward I focus on getting a lot of things done. But you do need to wind-down and enjoy life once in a while. But my work is my passion, which helps a lot to keep discipline and motivation going.

But people in the Silicon Valley enjoy life and I think the quality of life is better than northern Europe (European are not Europeans, and definitively not French, France is 13% of the European population, and cultures are very different across Europe), if not for other things the weather definitively helps (do you know that today in Stockholm there were 5 hours of daylight, and during that time it’s not much of it either, and it’s cold).

Move is happening February-March 2009, so excited to spend more time in the Bay area, and to get some traction for my new Internet bootstrapping business lab, bootstrapLabs that I just setup in Silicon Valley.

So Loic, and Michael I hope we run into each other next year in the Valley!