Tech innovation and venture investment with a Silicon Valley view of global trends
Wednesday, January 13, 2010
Supersize status for VC funds
Super-size is the trend among venture capital shops that can still raise funds in the current depressed economy. That's how I'm reading such recent developments as NEA's newly raised $2.5 billion fund plus a $1.2 billion fund for Norwest Venture Partners and $1.1 billion for Khosla Partners. More power to them! Many firms along Sand Hill Road keep trying and trying to close new funds and capitalize on the ripe opportunity to invest. These giant funds currently in the market doing deals will have the advantage as the venture world shrinks with winners separated from the losers. Valuations to get into entrepreneurial deals are lower, quality teams are easier to assemble and even the IPO exit route shows signs of getting more traveled in 2010. Sure, venture returns are depressed and fund raising is not much fun, hitting a five-year low in the U.S. with a 68 percent drop to $95.8 billion in 2009. But don't count venture out. It's a highly cyclical business, as I know all too well having endured the dotcom ups and downs when I was doing international editing for Red Herring. And, when venture is less crowded, that's when the investment returns are best.
Another interesting thing these funds have in common--besides size--is an outlook on India and China. NEA now has teams in both India and China, and Norwest has staffed up an Indian office and may open in China, Promod Haque told Silicon Dragon. He pointed out that India has strengths in software development and outsourcing of business processes, while China kicks in with hardware as well as semiconductor production and logistics. Over the past year, Norwest has funded three companies in India: the National Stock Exchange of India, mobile value-added service OnMobile and Shriram City Union Finance Limited. Norwest also inked a deal in China: mobile software startup Borqs Inc.
Spotted at the recent holiday party Norwest had in the Valley, Vinod Khosla also indicated that he's got at least one cleantech deal in India. I bet there will be more soon.
Not to be outdone, NEA's Dick Kramlich has spearheaded his firm's outreach in both India and China-and even moved to Shanghai for a few stints to show NEA's commitment to the region. He has two public listings of Chinese semiconductor companies to show for it too, plus more in the works. Next to make the move to China may be Scott Sandell, at least from what he recently told Silicon Dragon. Stay tuned.
Meanwhile, some well-known firms that have scurried to raise new funds and are still on the fund-raising trail have downsized their ambitious targets. Draper Fisher Jurvetson is one. While the firm now has two RMB funds, Tim Draper told me, the much-heralded shop has dropped its fund-raising goal to $400 million from $600 million.
Look for other funds to follow that lead as the big get bigger and suck up the also constricted limited partner dollars for lesser groups.
History shows just how cyclical the business is. When I was working at Red Herring during the dotcom bubble, super-size venture capital funds were the trend then too. Then came the meltdown and suddenly the 'in' thing to do was to downsize. Walden International was one of the pioneering leaders who took down the size of its fund, in this case from $1 billion-plus to a more right-sized fund of $600 million with its latest fund at $380 million.
Walden went on to score successive hits, and the industry too shored up for several more years until this latest meltdown in late 2008. Again, let's not count venture out just because of the poor returns of 2009. It's a new year, and a new beginning for those who tough it out.
Monday, January 4, 2010
Tudou, Youku going IPO in 3 years
Video sharing sites worldwide have struggled to get the right money-making model and competition has been heated, but two Chinese video sharing sites–Tudou and Youku–are both expected to reach profitability and go public within three years. Tudou.com founder and CEO Gary Wang (see photo) recently told Silicon Dragon News, “If we do go IPO, NASDAQ is a natural choice and it should happen within three years.”
Likewise, Youku CEO Victor Koo said in an interview with Silicon Dragon News that his video sharing site will reach profitability within three years and will then file for an IPO in Hong Kong of New York.
Predictions are that the field will narrow from four players to one or two standalone survivors in the highly competitive sector.
The positive outlook by Youku and Tudou comes as the online video ad market gained considerable momentum from the fourth quarter of 2008, with strong sales growth into 2009, noted one venture source in China. An IPO within three years is possible, he added.
China’s Youku, though getting a slightly later start in the market than Tudou, has gained the lead. It ranks eight in page views next to 12th for Tudou, according to recent CR-Nielsen rankings for page views.
Youku raised $40 million in mid-2008 from Sutter Hill Ventures, Chengwei Ventures, Farallon Capital and Brookside Capital, a fund affiliated with Bain Capital. Most were repeat investors from Youku’s prior round of financing at $25 million.
Tudou is backed by China’s IDG Technology Venture Investment Fund, which was a seed investor in late 2005, as well as GGV Capital. A second round of $8.5 million in 2006 was joined by IDG and JAFCO. A third round of $18 million was completed by Capital Today, General Catalyst Partners and KTB Network in July 2007.
Rival KU6 Holding Limited, which was funded by Draper Fisher Jurvetson, DT Capital Partners, UMC Capital and SBI Broadband Fund, was recently sold to Hurray! Holding Co., Ltd. for $37 million in what a Silicon Dragon venture source said was a distress sale since KU6.com was out of cash.
Monday, December 21, 2009
Sillicon Dragon: Google's China Blues
Commentary: Google's China BluesRebecca Fannin, 12.21.09, 06:00 PM EST
Will the search giant shutter its local operations in China?
Rumors have been flying about Google's future in China ever since the company's China head, Kai-Fu Lee, resigned in early September to start an incubator lab in Beijing. His departure seemed awfully abrupt.
Lee scurried to set up an office for his incubator, raise a fund and assemble a team from thousands of job seekers. Lee's PR reps in China and the Valley hyped his new project as his fulfillment of a dream to coach young Chinese entrepreneurs and support their best start-up ideas.
My venture investing sources in Beijing and Shanghai suspected then that there was more to Lee's departure than was being told. Maybe Larry Page and Sergey Brin want to exit China and Lee knew this, my sources speculated. Certainly, the rush to the exit door by Google staff in Beijing since September suggests that.
Indeed, Google has been trying to become the top search engine in China for nearly a decade, without success. Google hasn't said it is shuttering its local operations in China, but the company plans to power its Chinese search business from its Mountain View, Calif., headquarters.
Why did the mighty Google fail in China? For years, the company fumbled with inferior search results and unreliable service, not to mention censorship issues and that annoying upstart Baidu, which raced ahead with innovative technology that had a search algorithm for generating results that were more relevant in Mandarin.
To compete with Baidu head on, Google set up business on Chinese soil, recruited former Microsoft exec Lee, and began to gain traction. Lee hired more than 100 Beijing-based engineers and linguists. The effort moved the needle on Google's market share to 31% in 2009 from 21% in 2007.
But Baidu couldn't be crippled. The Chinese search company widened its market dominance of Chinese search to 64% from 58%. Not only was Baidu considered superior to Google for Chinese search, the team led by founder and CEO Robin Li proved nimble and innovative at introducing new popular features.
For example, Baidu began offering mobile search in China in 2006. It took Google nearly a year to catch up. Baidu also was first to use social media for conducing searches. It beat Google to the market with video clips too.
It shouldn't be all that surprising to see a big American brand being one-upped by a local competitor. Indeed, the story of a home-grown Chinese start-up triumphing over an iconic Internet rival is by now a familiar theme.
Just like Chinese search engine Baidu trumped Google, online bookseller Dangdang outsmarted Amazon in China with better merchandising skills while Alibaba-owned Chinese auction site Taobao took the lead from eBay by giving sellers a free listing of their goods and charging only for premium accounts.
In all three cases, astute local managers who were attuned to the culture and able to gauge consumers' buying and surfing habits on the Web were able to grab first place.
What helped was being on site to respond to China's fast-moving marketplace rather than in a faraway office on the other side of the Pacific.
But Google had the formidable Lee in China building a strong team. Still, the company's efforts proved too little too late to grab market share from Baidu.
Who could really blame Google for shifting gears? The censorship of the Internet in China has been a big enough headache for Google, let alone competing with Baidu. It was tough for top management to agree to Chinese government censorship in order to do business in China. Moreover, Google's standard, English-language Google.com site has continually faced blockages and search directs to other sites.
Google faces major challenges in China that are not going to disappear anytime soon. Stay tuned for the next chapter on Google's saga in China. I wouldn't be shocked to see Google retreat from China.
Rebecca A. Fannin is an internationally recognized author and journalist who has been writing about entrepreneurship and innovation for nearly 20 years. Her book, Silicon Dragon, was published by McGraw-Hill in 2008 and translated into several languages. During the height of the dot-com boom from 1999-2001, she was international news editor at Red Herring, later joining the Asian Venture Capital Journal as international editor and writing for several leading business publications, including Inc., The Deal, Worth, CEO and Fast Company. She also authored "A New Dawn" for KPMG in 2009. Fannin has lectured at several universities in Asia and the U.S., and has made numerous public speaking appearances worldwide.
See Also:
The Man Who's Beating Google
Google China Will Lose Head, Gain Bodies
Why China Will Win The Web
Friday, December 11, 2009
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