Social Networkers Bet on Education as Next Frontier
Posted on December 8, 2011 |
By Ari Levy
Reid Hoffman and Matt Cohler, two of Silicon Valley's social-networking pioneers, are throwing their hats into the education ring.
The entrepreneurs-turned-venture capitalists today led a $15 million investment in Edmodo, a free learning site for teachers and students that claims almost 5 million registered users. The cash pile, from Greylock Partners and Benchmark Capital, gives the management team the runway to hire developers and add products without doing the one thing they prefer not to talk about: making money.
"The platform will always be free for teachers, students and schools and we don't plan on advertising at all," says Nic Borg, founder and chief executive officer of the San Mateo, California-based company. "The purpose of this raise and the folks that are coming on board is about driving forward this grassroots movement."
A free Web service with no ads? Sounds like the early days of Facebook, where Cohler was one of the first employees. But that was back in 2005. This year, the social-networking site is poised to reap more than $2 billion in display-ad sales, according to EMarketer, thanks to brands such as Coca-Cola, Subway and Adidas.
Then there's LinkedIn, the professional-networking site founded by Hoffman, and Cohler's employer before he joined Facebook. While many of the site's 100 million plus users don't pay a cent, they're subsidized by premium subscribers and advertisers. LinkedIn's revenue more than doubled in the third quarter to $139.5 million. Cohler is now a partner at Benchmark and Hoffman is at Greylock.
In the press release today, Hoffman called Edmodo the "educational graph for learning," similar to Facebook's role as the connector of friends and LinkedIn's position in the workplace. Teachers at more than 60,000 schools, three-quarters of them in the U.S., are using the site to assign and grade homework, post educational videos, and share content with other teachers and classrooms. Edmodo works in the browser and on mobile devices such as smartphones and the iPod Touch.
Rob Hutter, the company's chairman, said the new financing gives the company "several years" to build and expand the product without worrying about generating revenue. He and Borg are looking for developers who are passionate about education and want to build something that they say is helping change education.
Of course, venture capitalists don't invest in startups unless they see the opportunity to make several times their money back, and Greylock and Benchmark have been among the most successful firms in that regard.
While expectations for Edmodo are surely no different, Cohler wouldn't divulge any more than the company, reiterating that the emphasis now is on reaching more people and hiring engineers.
"Revenue opportunities that emerge over time that we get excited about will be ones that are consistent with the mission of the business," Cohler says.
As for generating revenue today? "That's not what we're focused on at this point," he says.
Is the Venture Capital Market Getting Its Mojo Back?
Posted on November 13, 2009 |
The venture capital market appears to be bottoming out after a long decline, according to a Fenwick & West survey of the venture capital market for the third quarter of 2009.
There are two significant data points worth pulling out. First, the number of investment rounds for higher valuations (i.e. "up rounds") exceeded the number of investment rounds for lower valuations (i.e "down rounds") for the first time this year. Up rounds exceeded down rounds 41% to 36%, according to the survey. In the second quarter, down rounds exceeded up rounds 46% to 32%.
This the equivalent of a rising valuations in the stock market, suggesting that VCs are getting more optimistic about the value of venture-backed startups.
The second related point is that the average price of venture deals increased 11%, the first increase this year. That compares to a 6% decline in the second quarter, and a 3% decline in the first quarter.
Another positive data point, which I highlighted in my lead story for the new special report on the "The World's Most Intriguing New Companies," is that angel investment numbers have started to rise. During the first half of this year, angel investors financed 24,500 new ventures, 6% more than during the same period last year, according to the Center for Venture Research. The overall amount of money going into startups has declined, but the figures suggest that this year will see the birth of roughly 50,000 companies with enough promise that someone is betting money on them.
Before calling an absolute bottom, we need to see VC investment numbers starting to rise. And that seems at least a quarter or two away. The good news is that the rate of decline of investments has been dropping, from 57% year-over-year decline in the first quarter, to a 45% decline in the second quarter, to a 32% drop in the most recent quarter.
Like much of the financial system, the VC market is establishing a new normal. My hunch is that the market stabilizes and starts growing in the first quarter of 2010. It almost has to because the comparable figures for the first quarter of 2009 were horrific, reflecting the height of the financial panic.
- Spencer Ante also publishes the Creative Capital blog. Click here to see more.
Fenwick & West Q309 VC Terms Survey Report
Regulating Venture Capital: OK For Now, “Far From Finish Line”
Posted on October 21, 2009 |
Earlier this year, Silicon Valley freaked out when U.S. Treasury Secretary Timothy Geithner told Congress that large venture capital firms should be declared as systemic risks and put under tight restrictions as part of the broader re-regulation of financial firms.
Such regulations would force VCs to register with the Securities and Exchange Commission, and submit regular reports on their investors and portfolios, costing firms up to $1 million. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."
But techies breathed a sigh of relief earlier this month when Financial Services Chairman Barney Frank proposed draft legislation rejecting the Treasury plan, carving out an exemption for VCs from the "Private Fund Investment Advisers Registration Act of 2009." (see draft below)
That was good news for innovation. VCs do not pose a systemic risk to the economy, as Gordon Crovitz pointed out in this astute column in the Wall Street Journal. The venture capital industry is small compared to other capital markets. VCs do not use debt, so that sharply limits their risk. And they are not tightly interconnected with other financial firms, like AIG or Lehman Brothers were.
But they do represent an incredibly important part of the economy that helps generate significant wealth and job creation--a unique economic pillar the Treasury Dept. should be strengthening, not weakening.
But National Venture Capital Association President Mark Heesen says the VC industry is not out of the woods yet. "We are very far from the finish line, but in a better place than many expected at this point," Heesen wrote me in an email. "There is still no House or Senate bill, but House Chairman Frank's comments certainly are encouraging."
Financial reform hinges on, you guessed it, the passage of health care reform. "Many Senators sit on both Committees of jurisdiction so can't focus of financial reform until they see how health care proceeds," added Heesen.
To make sure VC regulation does not reappear in future versions of financial reform legislation, Heesen says the NVCA is continuing to work with the Administration and members of the House and Senate "to make certain Venture capitalists do not have to register under the 40 Act while giving the government the assurances they need to understand we do not pose a systemic risk to the economy."
- Spencer Ante also publishes the Creative Capital blog. Click here to see more.
Discussion Draft of the Private Fund Investment Advisors Registration Act
Venture-Backed Startups: A Growing and Increasingly Important Part of the U.S. Economy
Posted on September 17, 2009 |
Yesterday, the National Venture Capital Association published its fifth overview of the impact of companies backed by venture capital investment in the U.S. economy. The numbers are very interesting and provide data to support my theory that these high-growth startups are playing an increasingly important role in American business.
When I wrote Creative Capital, my book about the history of venture capital that was published last year, the 2007 NVCA survey that I cited found that as of the end of 2005 venture-backed companies accounted for 10 million jobs and nearly 17% of gross domestic product. The 2009 survey, which has data up to 2008, reports that venture-backed companies now account for 12 million jobs and 21% of GDP.
Another amazing chart to see in this report below shows how pervasive venture-backed companies are in the tech industry. In the software industry, for instance, 81% of the industry's 1 million jobs originate from venture-backed startups.
"The numbers and percentages went up because the vc-backed companies grew at a faster clip than the overall economy," says NVCA Vice President of Strategic Affairs & Public Outreach Emily Mendell. "There is something in the dna of these companies that sends them on a different, often better trajectory."
- Spencer Ante also publishes the Creative Capital blog. Click here to see more.
Made Men: Why Venture Capitalists Sponsor Other VCs
Posted on July 7, 2009 |
The big news out this week in the venture capital market is the launch of Andreessen Horowitz, a new $300 million venture capital fund co-founded by Marc Andreeseen, a tech visionary who founded Netscape Communications, the startup that triggered the Internet tsunami.
Raising $300 million for a first time fund is an incredible achievement in today's depressed capital-starved economy. How did Andreessen and his long-time business partner and co-investor Ben Horowitz pull it off? Well, tops on the list is the stellar reputation and track record of this pair. Andreessen has been at the forefront of the three major technology trends of the last 20 years: The Web, cloud computing and social networking.
After Andreessen launched Netscape, he and Horowitz founded tech service provider Opsware, which Hewlett-Packard bought in 2007 for $1.6 billion. Andreessen also co-founded Ning, a social networking company that is growing fast and generating revenue. "Marc understands technology on a deeper level than 99% of the public," says Todd Chaffee, partner with Institutional Venture Partners.
But one other big reason that the two were able to attract so much money, a key detail that I broke in my story for BusinessWeek, was the duo gained the support of three of Silicon Valley's most established and successful venture capital firms: Kleiner Perkins Caufield & Byers, Accel Partners and Greylock Partners.
The lead partners of these three firms (Kleiner's John Doerr, Accel's Jim Breyer and Greylock's Aneel Bushri) sponsored Andreessen Horowitz, say several sources. Being sponsored is sort of like being a made man in the mob. You are tapped on the shoulder and invited into an elite club.
Concretely, this means that these sponsors made personal introductions to several of their limited partner investors to help Andreessen raise money. No doubt, that sponsorship gave the investors more comfort to invest their dwindling capital with a group of first-time VCs. "Those are great anchor tenants that will give them more credibility," says Roger Lee, partner with Battery Ventures.
In fact, there's a long tradition of sponsorship in the venture business. Thomas J. Davis, the co-founder of Davis & Rock, one of the pioneering firms of the venture capital industry, helped Kleiner, Perkins raise money by introducing them to a few investors.
Similarly, the Mayfield Fund helped Don Valentine launch Sequoia Capital in the early 1970s. Gib Myers, one of the first partners of Mayfield, said that the firm set up Valentine with some free office space on Sand Hill Road in a building owned by Wally Davis, the co-founder of Mayfield Fund. "We helped Don get his start," Myers told me during an interview for my book. "He and Tommy and Wally were really good friends." Valentine repaid the favor by inviting Mayfield to invest in a little company called Atari.
Back in the early days of venture capital, sponsorship reflected the collegial milieu of what was then a cottage industry. These days, the practice is driven more by practical considerations. Venture firms occasionally help a newcomer this way to forge ties that could prove valuable later on. The new firms, for example, could give the established firms a window into a different area or the ability to get preferred access to co-invest on new deals. "You'd like to get plugged into that network," says Robert Ackerman, co-founder of Allegis Capital, which was sponsored by AVI Capital when it got started.
More recently, in 2007, Greylock sponsored life sciences investor Third Rock Ventures, investing some of its own money and introducing the founding team to several investors.
I was not able to find out if Kleiner, Accel or Greylock invested in Andreessen Horowitz. But I would not be surprised if they did. And why not? Increasingly, big firms are looking for ways to continue investing in early stage deals without all the time and energy it requires. In March, Sequoia Capital announced a small investment in the angel fund of Y Combinator. Investing in venture funds that focus on early stage deals could give the big guys a way efficiently scale their early stage investments.
- Spencer Ante also publishes the Creative Capital blog. Click here to see more.
