« July 2004 | Main | September 2004 »

August 30, 2004

MarketRange Inc. gets $7M

As reported in the Seattle Post-Intelligencer Tech Briefs today. Ignition is an investor, so I already have an opinion of the company. Have a look at their services though and make your own. Thanks John Cook for staying on top of the local VC news!

Posted by Martin at 10:05 AM | Comments (0) | TrackBack

August 29, 2004

want ad: oregon start ups: digital home

last week OVP and intel capital hosted a "digital home dinner" in portland.

the idea was pretty simple; we were trying to pull together the eco-system of folks in this region involved in various aspects of the consumer electronics/digital home "evolution" that is upon us. our hope was to draw on oregon's historic roots and strengths in image processing, printing, display, and video. our objective was to bring the eco-system together, putting the large established public firms with the raw start ups in a discussion on a shared interest. this is part of ovp's efforts to "jump start" a regional cluster and foster new starts.

60 representatives from firms like sharp-america, in-focus, LSI, clarity, planar, HP, Tek's video group were there to mix it up with start up teams like ambric,a UWB chip venture, and several guys with early ideas. co host's intel capital and ovp, along with CSFB, smartforest and NWTV were there to add the venture perspective...$'s looking for a home.

ideas were flying fast and furious:
- this isn't a simple case where sony and samsung win the home system with intel and msft make the x86 and pc the heart of the home "data center."
- this is still a UI and protocol nightmare
- there is a sense that many of the "functions" we see in data centers and many of the issues in accessing corporate resouces will have their "analogs" in the home
- these are global markets
- HDTV, cheap flat panels, home networking, BB to the home, and home digital content is the CONVERGENCE that is driving the "big wave"

no clear answers came out...but it's clear that OVP, i-cap, and the other venture folks in the room are intersted and listening hard...send in your ideas.

Posted by Dave at 8:53 AM | Comments (0) | TrackBack

August 27, 2004

random thoughts: china

it's easy to focus on the obvious signs of economic advancement in china: the shanghai skyline, the IPOs, the massive sucking sound of the world supply of steel/concrete/gas going to china, the allure of the billion+ people market, the GDP CAGR, etc.

however, as a member of the high tech community, my greatest fear is that we now have a national/regional competitor that has 3 of the core success factors in high tech: access to "right" human capital, access to growing markets, and access to ready sources of growth capital...and they have these 3 factors in sufficient quantities...and they have that secret sauce that we think of as uniquely "amereican"...that frontier entrepreneurialism.

in previous challenges to US tech leadership, japan in the 70's/80's, the 4 tigers in the 90's, europe throughout the years, no other region has brought these 4 factors together.

i see two huge impacts in the near term:
1. setting a benchmark for "capital efficiency" in start ups, the "china burnrate"...ie, if a traditional fabless semi start up needs $40-50M of venture to get up and running, and a china based (or hybrid) start up can do it for $20M in venture funding, you now have a significant competitive issue.

2. the innovation-thing. the indian and chinese immigrants that have been both the rank-and-file of our tech workforce, and in the last 10 years the founding team members of many of the most successful tech intesive start ups, are the same people that are "over there." moreover, for the first time, we're seeing many of these successful immigrants, "going home."

as a NW based early stage VC, we're not going to be a direct investor in china based start ups, but i do know that the "china factor" will impact every aspect of my business, today.

Posted by Dave at 6:52 AM | Comments (0) | TrackBack

August 11, 2004

A Tale of a Kirkland Startup

Remember when it took a couple million dollars to start a company? The fixed costs just to set up the basics were incredible. But today, so many people are willing to share their infrastructure with you and it is possible to access cheap talent around the world, that costs have come down dramatically. Here is one man's story over the last couple months. There are alot of lessons here for how to start in a garage today. Now go start that company you have always wanted to! Thanks Tom for writing this!
Martin

Anyone can leverage outsourcing to start their next company. I did! by Tom Ryan

“I’m not sure if this Internet thing is ever going to be big enough to care about”.

In 1995, I proposed that we build a call center help system using new web internet technologies to an Andersen Consulting (now Accenture) Partner, and this quote above was what I heard in response. It was several weeks before the Netscape IPO, and to me, it was the last time I remember hearing the Internet being “under-hyped” for many, many years.

In the months and years that followed, we heard much about the internet being the catalyst for “friction-free capitalism”, the entity that would break down cultural and economic barriers, and the perfect place to buy dog toys of all types. As it turned out, the American media might have “over-hyped” the internet a bit. Imagine that. Naturally, a backlash against the internet occurred, complete with dot-bomb failures of all types, and it was not that long ago that a British business colleague was giving me his views on my fellow “silly Americans and your mad internet ideas.”

So it was with some pleasant surprise that I found some pretty cool internet tools that made starting up my new business easier, and that I actually found delivering much of the promise of the late ‘90’s hype of the internet. I’m chronicling some of what I found here for others that are looking for help in getting many of the basic marketing materials of a brand new business in place for a low cost. I also think many of you who are just looking for a few new cool ideas might find my experiences interesting.

I started a company in April to provide interim and project-based management to early stage and fast growth companies. I named it “Athena Chiefs” after the Greek goddess Athena, primarily to make my Mom, a full-blooded Greek, a happy lady. I started thinking I needed to hire someone to create a logo, business cards and a website for me, and figured I’d spend a few thousand dollars doing so with some local artists and web folks. It was then that one of the smartest people in the world I know, Mike Moskowitz of Jetstream Software, suggested checking out a website called Design Outpost.

Design Outpost is basically a community of graphic artists all over the world that have, ahem, “extra time” on their hands to help clients with needs for various graphic designs. You can get just about anything designed for you there by running “contests” and letting the various graphic artists duke it out. So I decided to start with a $100 contest for my new logo, and see if I could get any good ideas. I paid the $100 and a 10% fee via PayPal, and then wrote a few things about my company (and what I knew of the goddess Athena) on a message-board site that I now had access to. I set the contest up for seven days, told them what I could (including mentioning my mom), and then sat back and waited for results. The whole process took 10 minutes at $110.

The next seven days were a great combination of 1. Entertaining, and 2. Productive! There were owl logos. There were helmet logos. There were colors and fonts of every combination, and from every continent on the planet. The artists encourage your comments, which were easy for me to make, and we gradually all zeroed in on a design. Because it was a public site, I was able to get friends, and yes, even my mom, to make comments on which designs they did and didn’t like. It was the epitome of a creative process, as minds from all over the world were on the problem. It was, in a word…”fun”. OK, a second word comes to mind, “cheap”. Well, OK, maybe I should just some it up as…”good”. I digress.

In any case, perhaps because it was suspiciously close to the release of the movie “Troy”, a Spartan war helmet won out, and I contacted the winning artist in Venezuela to make the final touches, and I had two logo alternatives in all possible graphic format. We were instant-messaging as we refined the design, and I asked about business cards. “Uh, how about 50 American dollars?” was his reply, and given that I’d spent over $1000 for a logo and card design at my last company, I quickly agreed. More instant messages followed, and I had my business card design delivered to Kinko’s that night, and my cards when I woke up the next day.

I should also mention that, during the creative process with my Venezuelan artist Alex, we both had our internet cameras on and could see each other (we even tried Voice over IP for a while, but preferred text). I found out why he had fled his native country of Russia - “as it turns out, Russia is not a very nice country to Jewish people”, Alex remarked (and I dropped the subject). I asked why he had moved to Venezuela of all countries, and then realized it was a dumb question. For those of you who don’t know, men move to different places for one of three reasons: 1% of the time to get away from their fathers, 1% of the time to take a fantastic job, and 98% of the time because of a girl. A few seconds went by and then Alex replied “it was because of a girl”. Silly me. In any case Design Outpost (and, yes, the internet) not only gave Alex a chance to make a living near his love-life, it also introduced me to a very interesting person from two different countries.

A few days later, I decided to take a weekend and hammer out a website. Armed with the book “Search Engine Optimization for Dummies”, Microsoft FrontPage, and Alex’s IM address, I went to work. Alex asked that I use another very cool internet tool, ikobo.com, to wire him the couple of hundred dollars he would charge me to build my web template. I did that with a credit card, paid a $5 fee, iKobo converted the dollars to Bolivars, and Alex then picked up the cash a few minutes later from an ATM machine near his house! As Homer Simpson might say: “Mmmm…Global Economomee.”

The result? Less than $400 total spent and the following website (with similar business cards) to show for it: www.athenachiefs.com. If you don’t like the site, it’s probably because of my crass and un-imaginative writing, not the cool and dynamic graphics. The only real argument Alex and I had was that he thought he needed to illustrate the various people rather than use pictures, proving that the Jerry Seinfeld “only 4%-6% of the population is actually attractive” rule is alive and well in the other hemispheres of our world, not just our own.

Feel free to contact me at tom@athenachiefs.com if you ever want additional details, Alex’s IM address, or just to comment on my crass and un-imaginative writing. Feel free to contact Mike Moskowitz at mikem@jetsoft.com if you want other smart ideas, or some of the best .Net developers on the planet (I’ve used them too – you don’t always have to go overseas!). Finally, feel free to look up “Friction-free Capitalism” on one of the internet’s many translation websites. I’ve found that it translates into, among other things, Venezuelan, Russian, and, finally, HTML.

Posted by Martin at 9:48 PM | Comments (5) | TrackBack

August 9, 2004

OVP adds Venture Partner

KIRKLAND, WA – August 6, 2004 – OVP Venture Partners, a venture capital market leader in the Pacific Northwest, today announced that veteran computer scientist, professor, research and development executive and venture advisor Dr. Rick LeFaivre has joined the firm as a venture partner.


Dr. LeFaivre has been at the forefront of innovation as a senior executive of market-leading companies during multiple waves of technology advancements within the fields of personal computing, advanced software environments, computer graphics, and user interface technology.


He began his executive career in Oregon in 1978, where he spent 11 years as Director of Computing and Visual Systems Research at Tektronix. In 1989 he moved to Silicon Valley, spending the next 10 years as an R&D executive at several high-technology leaders, including Sun Microsystems (Director of Windows and Graphics Systems), Silicon Graphics Computer Systems (Vice President of Engineering for Network Systems), Borland International (Senior Vice President of R&D and Chief Technology Officer), and Apple Computer, where he spent five years as Director and then Vice President of Apple’s renowned Advanced Technology Group.


Before moving back to the Pacific Northwest in 2004, he spent five years in La Jolla, helping to incubate new ventures as a founder of IdeaEdge Ventures and the Zazi Forum, and as Executive Director of the von Liebig Center for Entrepreneurism and Technology Advancement at the University of California, San Diego.


“Rick brings us a legacy of insight and a track record of success in being one step ahead of the next waves of technology convergence,” said OVP general partner Chad Waite. . “Very few people on the planet have the breadth and depth of experiences in technology as does Rick LeFaivre. We are extremely pleased to welcome him back to the Northwest and to have him on our team.”

Dr. LeFaivre has testified before the Congress of the United States on matters of technology policy, has served on a number of industry and academic advisory boards, and has published extensively in the computer science literature. His responsibilities have included overseeing international R&D centers in France, Germany, Belgium, Japan, Singapore, Australia and India, and he has launched ventures in the United Kingdom and India as well as the U.S. He is an advisor to several high-technology startups, and serves on the Board of Directors of WatchGuard Technologies (NASDAQ: WGRD), an OVP-funded start-up.


Waite added, “Over the next two decades, our industry is going to see major technology shifts in mobility, video processing, the digital home, as well as advanced networks and embedded software. All of these arenas are Pacific Northwest strengths supported by global heavyweights who live in our backyard – Intel, Microsoft and Linux to name just a few. Rick will provide us with his industry expertise and perspectives into these technologies and its market cycles in the years ahead, providing a win for our entrepreneurs and investors.”


“I took a long hard look at opportunities with industry and venture players in Seattle and no matter which way I reviewed it, OVP always led the pack,” said Dr. LeFaivre. “Their strategies to identify, invest and work hands-on with the entrepreneurs and technologies that will lead the next wave of technology convergence, fit my own interests and convictions head-on.”


At OVP, Dr. LeFaivre is charged with working side-by-side with the other members of the partnership on identifying and analyzing “white spaces” – market technology areas where there may be opportunities for successful new ventures. He will be based in OVP’s Kirkland office while serving the full portfolio of OVP investments.


LeFaivre is a mathematics major from the University of Missouri, received his Ph.D in computer sciences at the University of Wisconsin and spent four years as a professor in the computer science department at Rutgers, the State University of New Jersey, teaching and carrying out research in artificial intelligence and advanced programming technology. He was one of the first researchers to apply the principals of “fuzzy reasoning” to the development of intelligent systems.


About OVP Venture Partners


OVP is a leading venture firm in the Pacific Northwest and has more than $500 million in capital under management. The firm has raised six venture funds with an investment focus in pre-revenue software, communications, and electronics companies. OVP is led by five investment partners. Chad Waite, Gerry Langeler, Dave Chen, Lucinda Stewart and Dr. Rick LeFaivre lead or co-lead all deals. Over the past 20 years, OVP has invested in almost 80 start-up companies. OVP institutional investors include: Oregon Public Employees Retirement Fund, the Washington State Investment Board, CALPERS (Grove Street), Nationwide Insurance, Western Metal, Dow Chemical, Meyer Trust, and a number of university endowments. OVP VI closed in 2002 at $185 million. OVP’s Technology Advisory Board includes leading CIO’s and CTO’s who work or have worked at Intel, Microsoft, Nike, Morgan Stanley, Aventis, General Electric, Deutsche Bank, Providence Health Systems and TCI. For more information, please go to: www.ovp.com


Posted by Martin at 7:18 PM | Comments (0) | TrackBack

August 3, 2004

Teranode gets Series A funding

Teranode released this announcement today: Investments Launch Teranode Into the Life Sciences Spotlight. While posting about this is a bit self-serving (since Ignition did the round and I am an observer on the board), I actually wanted to share with everyone some of the larger themes around this investment and take a moment to note what I hope is an emerging trend in NW Venture Capital.

Teranode is one of the first in a new breed of companies that I see growing up in Seattle. It is software meets life sciences. In many ways this is a second generation effect built on the very large software and (until now separate) life sciences communities here.

These two worlds have largely operated in their own worlds until very recently. The software companies were focused on the enterprise, internet, security, internet media, and a host of start-up ideas mainly selling to the IT department or line of business users in enterprise. The biology and chemistry companies have grown up out of various UW programs and around the Fred Hutch. Paul Allen has made a very big bet in South Lake Union to transform that area into a biotech hotbed. But these companies are mainly medical device companies, drug therapies, and other physical product companies.

When you peel back the layers of how people actually work in medicine, biology, and various cancer research organizations, you find a startling lack of good software. Today's enterprise desktop user takes it as a given that they are handed fairly mature set of technology tools (MS Office, Internet, database applications) with which to perform their jobs. With today's service oriented architectures, new IT applications can be developed and deployed in weeks. The bench lab worker, especially in biology, has few such tools. His primary workspace is massive Excel worksheets. There is little centralized database storage or standardized data sharing. Many high-tech machines spin compounds and spit out lots of data, but there is little integration of that data between hardware manufactures. There have been attempts to make "paperless" workflow systems for the bio worker (commonly called Labratory Information Managment Systems - LIMS) but these largely fallen prey to the same problems that doomed such overarching systems in the enterprise. They impose a specific workflow and set of procedures on the worker. If the worker wants to dieviate, the system won't work. To change these systems is a long process requiring lots of IT resources. It is largely like the Mainframe days of office information workers. To me it is like stepping back 15 years.

Now comes companies like Teranode who promise a set of desktop tools that run on a PC which allow one worker to derive value by codifing THEIR OWN SPECIFIC WORKFLOW AND PROCESS. The basic thesis here is to really unlock the power of the desktop PC for the individual researcher. Today it is primarilly a dumb terminal if anything. Teranode is run by an ex-Oracle guy who understands the value of software to the enterprise. He will translate that learning to the bio enterprise. Look for more companies like this as Seattle's two large tech industries, software and biotech, increasingly collide and find reasons to support each other.

Posted by Martin at 5:59 PM | Comments (1) | TrackBack

August 2, 2004

First Half Market Observations

This is a peice that was authored by Christian Schiller, Jeff Sussman and Kevin Cable at Cascadia Capital. It feels like a good perspective on the activity in today's market. I hope you enjoy it.

The Perfect Storm
Three converging market trends have created a unique window of opportunity in corporate finance—for buyers and sellers alike:

What's the upshot? Companies seeking recapitalization or acquisition should stay alert to these changing market dynamics.

Debt Market Leading the Way
The clear driver of today's increased number of private equity transactions has been the revitalization of the debt markets as a consequence of three related forces:

Even with the not so distant memories of the unprecedented level of bankruptcies in 2001 and 2002, banks have come back with a vengeance in terms of lending money.

The secured (senior) lenders have awakened from a three-year slumber and pushed average senior debt multiples to 3.3x EBITDA by mid 2004 from 2.2x EBITDA back in 2001 (see chart below). Asset-based lenders are also getting more aggressive with "tranche B" or "second lien" financing to increase total secured debt packages by another 10-20%. For the private equity markets, cash flow lending is still king, but asset-based lenders have started to play more actively once again, especially in turnaround and bankruptcy-related financing. Also, non-traditional forms of secured financings continue to see aggressive expansion with financings tied to maintenance contracts, intellectual property and other non-traditional assets.


The unsecured debt markets have encountered even more sizzle as a substantial supply of leveraged capital has provided the impetus for aggressive lending. Mezzanine debt has come under competitive pressure as many new entrants, most notably hedge funds, have entered the debt market. These players have had a competitive effect in driving the cost of capital down substantially. In addition, the high-yield markets have provided further competition as market dynamics have driven the cost of capital below 10% for the first time since 1997. Finally, venture lending has returned as many private companies are utilizing the debt markets as a low-cost mezzanine financing source that is both dilution-friendly and quick to close.

Momentum in M&A, Venture Capital and Private Equity Buyouts
Metrics across the capital markets have also been trending positively with all transaction categories enjoying the benefits of a white-hot debt market. The first half of 2004 showed continued improvement across our three primary transaction markets of corporate M&A, venture capital and private equity buyouts. For the overall M&A market, there were 4,284 announced transactions totaling $511 billion in the first half of 2004 versus 4,166 transactions totaling $227 billion for the same period in 2003. Year to date, the venture capital market has also seen continued progress with 1,311 deals for nearly $13 billion in financing, up from 1,251 and $10 billion YTD for 2003. Rounding out the triple play, the private equity market saw a 26% increase over the same period a year ago with $29.6 billion in deal volume.

Unprecedented Competition in Private Equity

Perhaps most interestingly, we're seeing unprecedented competition within the private equity markets. As little as two years ago, financial buyers couldn't offer a price high enough to entice sellers in a competitive process. The increase in average debt multiples from 3x in 2002 to 4.9x in 2004 has allowed private equity buyers and corporate sellers to bridge the valuation gap and complete transactions otherwise unobtainable. In some cases, leverage markets have allowed private equity buyers to be more competitive than strategic buyers with an average 1.1x premium in private equity buyouts over strategic transactions in the middle market.

Even greater evidence to the competitiveness of private equity buyers comes in situations where private equity firms sell a portfolio company to another private equity buyer, "trading up". One recent example is a $250 million deal between Windward Capital and GTCR Golder Rauner for transaction processor Retriever Payment Systems. Retriever gained its independence from First National Bank of Omaha back in 2001 through a management-led buyout backed by Windward Capital. Due to a complement in GTCR's portfolio and the favorable debt markets, they were able to outbid the strategic buyers for the company and win the deal.

How Long Before the Music Stops?
There is a tremendous near-term opportunity for private and public companies to build value through various debt financings. Debt financing can be tailored to almost every imaginable business and transaction situation, offering flexibility and breadth of liquidity opportunities for private company owners in dividend recaps and other liquidity financings even without a majority equity transaction. Similarly, in terms of M&A transactions, acquisitive private companies have an opportunity to approach strategic M&A through more complex leverage structures.

Despite the performance of the debt markets in the first half of 2004, no one is sure how much longer this will last before the music stops. Uncertainty abounds. The looming presidential election and the situation in Iraq could suppress the current capital market activity. It's an unusual confluence of circumstances, to be sure. Where there is change, there is opportunity.

Posted by Kevin at 1:51 PM | Comments (0) | TrackBack