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AlwaysOn Venture Summit: Angels still finding opportunities in downturn

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Published December 2, 2008 at 8:41 PM

Clavier.jpgHowever ominous the title may have been, the late afternoon panel "Is Angel and Early Stage Investing Dead?" at the AlwaysOn Venture Summit proved to be more cautiously optimistic than it was bearish. If panelists Ron Conway, SoftTechVC's Jeff Clavier, Felicis Ventures' Aydin Senkut and August Capital's Howard Hartenbaum agreed that last year's party is over, all faced the future with an eye on seizing opportunities presented by the current environment of slow growth, scarce debt and few exits. A few observations from the discussion:

  • Just 11 months ago, Clavier suggested to me that social media companies could afford to wait for revenue if they could establish a presence with a few million users first. Judging by the panelists' remarks today, that notion has become less popular. "Getting page views and saying, 'We'll put ads on them,' is not a business model," noted Hartenbaum, who also said he'd rather invest in startups that had already generated revenue "even though I'm an early-stage investor." Still, Clavier said he sees value in Web 2.0 deals that may require building an audience before a revenue model.
  • Conway threw down the gauntlet with a memorable one-liner: "Any company with less than a year of cash in the bank, I consider to be in the intensive care unit." Moments later, he added that startups with less runway "might as well shut down now" unless they can raise more capital, most likely from insider investors.
  • Conway also said new startups should raise at least 18 months' worth of capital, because an exit of any kind is highly unlikely in the next year and a half.
  • Senkut was somewhat sunnier about potential exits on the M&A side, noting that some old-guard companies haven't yet made their moves into new media, and will do so when prices are low. He also argued that the weakness of U.S. currency may provoke cross-border transactions.
  • Conway said that both the quantity and quality of new deals has remained steady despite the crisis on Wall Street and difficult debt market. Terms have been more favorable to investors, though, with valuations down 20% to 25% and liquidation preferences added to term sheets.
  • Hartenbaum pointed out that since so much of the economic crisis has to do with the availability of debt, the current cycle will favor traditional VCs who formally invest equity rather than angels who provide debt in early rounds.
  • The panelists named several market segments poised for growth: Search engines powered by crowdsourcing, cloud computing, how-to Web sites, microtransactions, gaming, healthcare and personalized medicine.
  • Hartenbaum had the panel's other great one-liner with a surfing metaphor, perfect for the conference's Half Moon Bay location: "I'd rather have a company make it because they can paddle really fast, not because they can sit in the water and wait for a wave." In the downturn, these investors could be mavericks indeed. -- Paul Bonanos

See Jan. 14 post from Tech Confidential about Jeff Clavier's social media investments

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Comments

From: Alex Wise,

How did they define the Microtransactions sector? Is it software that enables them or sites that sell, let's say content, for pennies?

Posted on: December 3, 2008 6:55 PM


From: Adrian ,

"the current cycle will favor traditional VCs who formally invest equity rather than angels who provide debt in early rounds."

huh? that's not the same kind of debt. angels investing in convertible debt in-between or before equity rounds are doing equity investing -- they want to buy equity, they're not doing it to collect interest... they just aren't coming in size to set a valuation...

Posted on: December 3, 2008 9:51 PM


From: Paul Bonanos,

Adrian, he might've simply been making a rhetorical parallel regarding debt, or maybe not. You can judge for yourself what he might've meant on the archived Webcast -- it's here.

Unfortunately, Hartenbaum's remark is split between Part One and Part Two of the video of that panel. He begins at roughly 10:10 of the first segment, and continues into the second.

Alex, Senkut didn't say much about what kind of microtransactions, but he mentions them at roughly 25:10 of Part Two of the Webcast.

Thanks for reading --
Paul

Posted on: December 4, 2008 12:16 PM


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