Jeff Clavier's Software Only

Announcing SoftTech VC’s $12M seed fund – the Return to the Dark Side

After 3 years of angel investing in 20+ Consumer Internet startups (and profitably selling 5 of them), I am very excited, and humbled, to announce the launch of my very own VC fund, SoftTech VC II, L.P. Some of you may wonder what is actually the difference between what I have been doing until now – after all I am still referred to as a VC by many – and this new $12M fund.

One major difference: I have taken the step (back to the Dark Side ☺) and have raised outside capital, from a mix of fantastic institutional and private investors. Angels invest their own money, VCs invest capital they have raised from others - as well as their own since it is market practice that Fund Managers also contribute to the fund’s capital. In most cases, it is extremely difficult to raise the first fund of a new firm. Despite great individual track records, it might take a year or two of effort to assemble a syndicate of Limited Partners (this is how people investing in VC funds are referred to) willing to back a new team.

When I left my previous fund (Reuters Venture Capital), I wanted none of that: my passion was working with early stage entrepreneurs, supporting them with time, cash and connections. And since I had zero track record in the consumer internet space, thinking that I could raise outside capital in 2004 would have been a total fantasy. That’s why, like so many entrepreneurs, I decided to bootstrap my own startup – using some of the family’s savings and generating cashflows from a few consulting gigs. It just so happens that the “market” I had decided to enter was early stage investing… in other startups. Last June, serendipity helped me decide, and eventually secure, the next logical step for SoftTech VC. As many friends in the angel and VC community were asking me whether I was thinking of joining an existing firm, or raise my own fund at some point, a few people hinted that they would be really interested in investing in a fund if I was to start one.

A few more discussions and one PowerPoint, later the core foundation of my new fund was there:

• invest in 30 to 40 seed stage startups
• average “bite size” of $250K, ranging from $100K to $500K
• able to lead, co-lead or follow other firms or angel syndicates
• focusing on consumer Internet, but with a great flexibility to enter new sectors opportunistically • open to a few non Silicon Valley deals
• capital efficiency, great teams, differentiated ideas and flexibility on “how big it can become” will be common characteristics shared by the companies we invest in
• working hand in hand with the best firms in Silicon Valley, and the usual suspects in the acquisition gang, to build a successful outcome for everyone involved
• I would be the sole Fund Manager of the fund, with the support of a fantastic advisory board: my friends Jon Miller, Josh Kopelman and Reid Hoffman

The actual size of the fund was the subject of an interesting discussions, tossing around different numbers that all would have made sense: $5M, $10M, $20M,… A number of factors led us (my investors and myself) to decide that $12M was the right amount, and a significant portion of the fund was subscribed in just a few days, with final allocations having been made a short time thereafter. You have two ways to look at how long it took to raise the fund: 3 ½ years of hard work since I started investing, or a few weeks. All this would not have happened without the support and wisdom of the great investors who decided to follow me in this adventure: Jon Miller, Reid Hoffman, Josh Kopelman, Geoff Ralston, Jim Bankoff, Mark Fletcher, MR Rangaswami, Loic Le Meur, Brad Feld, Frank Caufield and his firm Darwin Ventures, Tim Chang and the whole Norwest Venture Partners team. And no, I am not naming everyone – some investors want to remain “stealth” and I obviously will respect it. But thanks to ALL of you.

I am used to always direct any bit of attention I get from the media to the real heroes: the entrepreneurs I have the privilege to work with, building great companies, capturing markets and having fun at the same time. I am therefore super psyched to introduce the first four investments of SoftTech VC II. Yes, four. Been busy this summer, between forming the fund, selling two companies (Yay Kaboodle and Maya’s Mom!), and getting these four to the finish lines.

I will write a post about the fund’s investment areas of interest later this week, and want to share a quick background to these new investments:

• SocialMedia.com was co-founded by my good friend Seth Goldstein, and has been building an infrastructure and an ad network targeted at social network application developers. The company will help these developers manage, market and monetize their applications.  After just a few weeks, last Friday’s revenue on Facebook alone, was over $10K - most of which was distributed to independent developers.
• Active Athlete Media’s focus is active consumers who participate in sports, and the advertisers desiring to reach this passionate audience engaged in the sports they love, on thousands of mid to long tail websites. To date, I had been reluctant to jump into a sport-centric community (passion centric communities will still have a strong representation in the new portfolio). However a monetization solution like Active Athlete’s, which has been steadily growing and generating revenues, became very attractive in order to set foot in the category.
• Satisfaction Unlimited announced its funding mentioning me as an angel investor just last week, but I am pleased to point out that it is actually SoftTech VC II that made this investment. I have known the co-founders of the company, Thor and Lane, for a long time, and saw their concept of a People-Powered Customer Service being refined and improved over the course of several meetings through the summer, and could not pass on it.
• Grouply is one of these “The World Needs” companies where one day I decide that a product or service needs a fresh start. There are hundreds of millions of users of message boards, email lists, forums and online groups products like Google Groups and Yahoo Groups, and they have not evolved for a long long time. Grouply will help solve that by enabling users to easily adopt a richer and more powerful experience for their existing online groups.

One of the key factors that have influenced my decision to get on this journey is the sheer number and quality of many of the companies that I have had a chance to be introduced to. I feel extremely lucky to have the best job in the world, and to be given the opportunity to take my passion to the next level.

Experimenting with a few services on this blog

I have always tested a number of tools and services on this blog, to the point of sometimes making the page load time untolerably long (apologies for that - obviously not intended). One of the areas of experimentation is advertising, and you might have noticed sponsored links, banners, both on the blog and on the feed. My motivation is not to make money that way (I would not go very far with the amounts generated), but to figure out how mainstream consumer advertising programs "work" on social media content. The last one - that replaced AdSense - is , Amazon's new advertising program called Omacaze Links. Initial results aren’t too convincing yet – but we’ll see how that automatic contextual matching combined with behavioral targeting performs. To date, I have received the best results from the FeedBurner advertising network inserting ads in my feeds.

I have also added a pretty cool community building feature called MyBlogLog. My friend Brad Feld has been using the service for a long time, and like him I enjoyed analytics that MBL provide daily about your “clicks-out”. Then MyBlogLog has added this automatic creation of reader communities, which I find interesting – any user of MyBlogLog accessing my blog more than a few times is automatically added to my reader community. And it just takes a few minutes to configure the tool and add a piece of JavaScript to your template to get this list of faces having most recently accessed the blog. Last weeek, Eric Marcoullier, MBL’s founding CEO (who has since left the reins of the company to Scott Rafer), has enabled a cool hack: the addition of pictures from readers leaving comments. This feature is very familiar to Flickr or any service that requires a login to leave a comment - but MBL can add this feature to blog running on TypePad or Wordpress. Sort of adding a personal touch to faceless blogging… Note that images are added once the page is fully loaded and therefore it can take a bit of time. Check out MBL's blog here.

And this is post #500. I know that some blogs get there in a few weeks but it took me a couple of years.

FOX going for Google in multi-year search deal

I just spotted on TechCrunch that Fox Interactive Media has chosen Google to power Internet search on MySpace and its other Internet properties. Per the official press release:

The agreement calls for Google to power web, vertical and site specific search for MySpace.com and the majority of Fox Interactive Media properties. Google will be the exclusive provider of text-based advertising and keyword targeted ads through its AdSense program, for inventory on Fox Interactive Media’s network. Google will also have a right of first refusal on display advertising sold through third parties on Fox Interactive Media’s network.

Whilst interesting details of the deal, such as the revenue share percentage, have not been disclosed - there is a 3+ year commitment for Google to contribute an aggregate revenue share of $900M. This deal is obviously significant as it is one of the last major US search deals that was not yet Google's. It seems to be a logical choice as Google is known to offer the best overall yield and MySpace's traffic is so large - not even mentionning other large properties like FoxSports, IGN or FoxNews that are already monetized - that Google's inventory will definitely be put to work here. The $900M figure, while “non trivial”, strikes me as low - relatively speaking. $900M over three plus years implies less than $25M a month in direct revenue to Fox. Views on that anyone ?

A derivative of this deal is that  MySpace and Google could develop, and deploy, social search at real scale if ever they felt this was an interesting experiment/trend.

Rafat provides a summary of key facts mentioned during the analysts conference call:

• Video not part of this deal, but we will have talks with Google on future opportunities.
• FoxSports.com is NOT part of the deal, due to its existing deal with Microsoft/MSN.
• This is a standard Google ad-revenue sharing deal where the majority of the revenues comes to the content holder.
• We have been planning on releasing a MySpace toolbar and we will think of integrating it with Google.
• It is an all cash deal.
• We are about to launch IGN properties in UK.
• We are about to cross 100 million people profile on MySpace.
• The deal covers every territory except two countries (not disclosing these two countries).
• We had conversations with Google competitors.
• On the remnant inventory– with which we work with 17 providers–Google will have the first right of refusal for this inventory.
• We find that the largest amount of people leave MySpace to Google…that was the most attractive part in the decision leading to the deal.
• We had been using Yahoo in some parts, and our own technology in others.
• Ross Levinsohn: I am not concerned about the relationship between AOL and Google.
• Early on we were looking fairly closely at video search, and the text search only became more important over late.

Tags: google, myspace

MySpace now top US Internet property in front of Yahoo (well, not exactly)

Reuters just relayed that, according to Internet tracking firm Hitwise, MySpace has surpassed Yahoo as the number one Internet property in the US. The piece does not indicate which metric is being used (unique visitors, number of visits, number of page views, etc) but it might be visits. Hopefully Hitwise will has released that analysis on their (very informative) blog: MySpace Moves Into #1 Position for all Internet Sites. The chart below shows the growth of MySpace’s market share against Google. It would have been nice to have Yahoo’s  plotted as well.

A few interesting data points:

• MySpace accounted for 4.45 percent of all U.S. Internet visits for the week ending July 8, pushing it past Yahoo Mail for the first time and outpacing the home pages for Yahoo, Google and Microsoft's MSN Hotmail.
• To put MySpace's growth in perspective, if we look back to July 2004 myspace.com represented only .1% of all Internet visits. This time last year myspace.com represented 1.9% of all Internet visits. With 4.45% of all U.S. Internet visits, myspace.com has achieved a 4300% increase in visits over two years and 132% increase in visits since the same time last year.
• MySpace captured nearly 80 percent of visits to online social networking sites, up from 76 percent in April. A distant second was FaceBook at 7.6 percent.
• Of the top 20 search terms driving traffic to Internet sites – over the past 4 weeks, 5 were related to MySpace (myspace, myspace.com, www.myspace.com, my space, myspace layouts) representing in aggregate 1.85% of all searches (and that’s just looking at these five keywords).

This makes NewsCorp's $580M buy of Intermix Media increasingly look like a bargain – especially as FIM improves the monetization of that massive audience and traffic.

Just so happens that Fred Wilson also featured the Comscore Mediametrix June numbers regarding top social networking sites. Per the aforementioned statistics, MySpace dwarfs other networks both in terms of actual audience and growth.

Update: I am late (very) late at publishing this, but Yahoo got very angry at the allegation made by Hitwise, and Tim Smith from Outcast PR reached out to bloggers with the following statement:

The report that Hitwise released today with the headline “MySpace Moves Into #1 Position for all Internet Sites” is misleading. The Yahoo! network is made up of many domains and it is not accurate to compare MySpace.com to just Yahoo!’s mail.yahoo.com domain. When taking into account all of Yahoo!’s domains together as an entire network, Yahoo! clearly remains the number one property in terms of audience share, duration share, page view share and days visited per month.

In the U.S. alone, Yahoo! attracts 129 million unique visitors per month, which represents 74 percent of the online population; in comparison, MySpace reaches only 30 percent of the online population with an audience of 52 million unique visitors. In addition, Yahoo! has the largest share of online time spent than any other property: Yahoo! accounts for 13 percent of users’ online time, while MySpace has only 3.2 percent share in users’ online time.

Yahoo! maintains its leadership position as the world’s most trafficked Internet destination online, with a community of more than 500 million unique monthly visitors from around the globe.

(These statistics are according to comScore Media Metrix, June 2006)

I thought I would ask my friend LeeAnn Prescott from Hitwise what they thought of the reaction, and Hitwise's public statement was:

Hitwise ranks over 500,000 websites on a daily basis, including individual sites as well as the domains and sub-domains of larger websites. The press release issued yesterday included the top-10 domains and at no time did we represent all MySpace properties compared to all Yahoo! properties. The table included in the press release listed the rank order of the individual domains and sub-domains as reported from our data.

Net net: Hitwise seems to have compared apples and oranges when publishing their report, and we (I) have not investigated quite enough before relaying the information.

Tags: myspace

Tags: myspace

A few data points about podcast advertising

MarketWatch’s Frank Barnako published a piece (free sub req'd) about podcast advertising, out of which a few nuggets of information are worth noting:

• Podshow claims to have reached in Q405 their 2006 revenue target of $300 to $400K, and predicts sales in the millions of dollars this year.
• There seems to be a consensus that there's money to be made by recycling established media in the podcast world, too. Michael Greeson, president of the Diffusion Group of Dallas, pointed out that NPR recorded 4 million downloads in the first two months it offered podcasts.
• Last summer, Greeson issued a research report projecting nearly 60 million people in the United States will be listening to podcasts by 2010. The report also estimated 15.5 million portable players would be sold last year; the tally was closer to 22 million.
• Cameron Reilly, the founder of the Podcast Network of Australia, is achieving between $40 and $100 cost-per-thousand on his podcasts, but this level of revenue will only be accessible to the most popular podcasts because of their traffic and/or demographics.
• At least half-dozen companies have announced plans to offer menus of podcasts to advertisers. Firms like Podtrac Inc. say that they will do the selling and help podcasters insert ads in shows, and take less than half of the revenue as commission.

Has anyone done a review or comparison of podcast advertising tools/networks ?

Online ad spending to remain strong in 2006 - Growth conservatively pegged at 24% - Piper Jaffray's Safa Rashtchy

Safa Rashtchy’s newsletter is one of my Monday morning must reads. If you are interested in tracking trends in online commerce and advertising. This morning’s edition contains a forecast of continued growth of online advertising in 2006 following discussions Piper Jaffray’s analysts have had with large ad agencies. The forecast pegs that growth at 24%, as compared to 36% in 2005 - and categorizes the estimate as  potentially conservative.

Key facts mentioned in the report were:

• Auto, Finance, & Entertainment Advertisers expressing strong demand, and Healthcare is starting to shift budgets online (this can only be positive for healthcare vertical search engine Healthline that just pulled in a large round – congrats to friend Tony and team).
• Agencies expect pricing to increase 15%-20% for high-demand inventory
• Inventory shortages do not appear to be an issue (this refers to a previous news that the inventory of top Internet sites were fully sold out).
• Ad networks primarily utilized for direct response today, but are beginning to get more branding dollars.
• Video ads the next big ad format - expecting 2 or 3x the CPM of traditional banner ads.
• Search demand remains strong; ROI becoming more challenging.
• Web design and analytics experiencing increased demand.

 

If ever you actually wanted to buy a rooftop ad

Yesterday I wrote : Get ready to spot some RoofSense ads. Well, an auction for a one year ad placement is now on eBay here. It was listed 3 days ago by a company called Roofshout – whose domain has been registered 4 days ago.

Details of the actual placement, location, search traffic, etc. are more than fuzzy – to say the least since there are none. We’ll see where that one ends up: current price, $105 – 6 days to go.

What do you think: yet another eBay scam or market test ?

[via Silicon Valley Sleuth]

Update: apparently, this is actually the start of a business - with a blog.

Get ready to spot some RoofSense ads

The MIT Advertising Lab points to this picture of a building rooftop covered by the branding of the business occupying it (in the example: Target). It turns out, reading the comments related to the post, that this Target store is located next to O’Hare airport (Chicago, IL) – the busiest airport in the country, on the path of one of the runways.

The point though is that this kind of practice might become a new advertising mechanism, sort of the billboard-equivalent of satellite photos. With GoogleMaps and MSN VirtualEarth providing high-definition photos of cities, one could figure out some way of displaying advertising/branding messages on rooftops next to popular monuments or coordinates. As to whether this would overlap Google or MSN’s own advertising plans is another story.

Create any kind of new “real estate”, advertising will be one of the first leveraging it.

[via Search Engine Roundtable]

Don't blame entrepreneurs to base their business model on advertising...

when you get headlines like this one: Advertisers' growing Net appetite shows.

Note: I have also published this piece on my Wordpress.com account since I could not access TypePad to post it on Software Only. Sounds like the technical problems and scaling issues aren’t quite solved yet… And I know that no-one is reading that blog, but hey – publish or perish :-).

We all know that ad spending is cyclical, and startups need to have revenue sources that are less prone to going up and done like a roller coaster. Just as an example, John Battelle during the November session of the Search SIG shared with the audience that the Industry Standard went from a $260M revenue run rate to $47M in one quarter when Bubble 1.0 exploded.

In that context, MarketWatch’s Frank Barnako had this catchy headline for his column this morning, referring to an article of the Wall Street Journal: Top Web Sites Build Up
Ad Backlog, Raise Rates. The most interesting, and concerning (?), bit was:

Sales of online advertising are so strong that some Web sites are sold out and taking orders 18 months in advance. "We have a supply issue," Joanne Bradford, chief media revenue officer for Microsoft's MSN, told the Wall Street Journal. Rising demand is allowing major Web portals to raise their ad rates. Several told the Journal that they've increased prices as much as 20% this year. MSN, owned by Microsoft Corp. said it charges as much as $1 million for an ad that lasts 24 hours on the site. "It's starting to get into Super Bowl territory," said Sean Finnegan, U.S. director of OMD Digital, a division of ad-agency giant Omnicom Group.

The Web's multimedia capabilities are driving demand for broadband placements. "We have ad agencies telling us, 'We'll take every impression you can give us,' " said Wayne Gattinella, president and chief executive for WebMD Health. The president of the industry's Interactive Advertising Bureau said media buyers are able to make rational judgments to justify online spending. "In 1999, there was no research and people were chasing fear and greed," Greg Stuart told the Journal. "Now, there's good data, plus marketers have their own real experience."

Obviously, not every online property is as sought as MSN (or Yahoo, or MySpace,…) and I would venture that this overcapacity of ad inventory is only limited to the top Web properties. At the same time, it is clear that web sites, services or communities able to attract and serve a specific audience will get favorable response from direct advertisers interested in reaching and engaging that audience.

Brightcove's "whole tail" advertising and delivery platform

Brightcove, the company founded by Jeremy Allaire, is disclosing its advertising platform offering in this Clickz piece. This goes a step further from the pre-alpha launch presentation Jeremy gave at the Web 2.0 conference.

The company has developed a platform to allow commercial video publishers of all sizes to distribute their video content over the Internet using Flash. Smaller publishers can use a self-service interface, while larger ones will have access to more advanced tools used by traditional broadcasters. Publishers upload their video, categorize it with metadata tags, choose a design template, create graphic overlays with their brand or an affiliate's brand, and publish the Flash file.

Publishers will be able to monetize their content either by selling and serving their own ads, by running ads from Brightcove's ad network, or by selling their content for purchase or subscription. The Brightcove platform allows publishers to create customized video players to distribute on their own site, or on affiliate sites. Brightcove offers the production and syndication tools, and handles the billing and collection for the publisher.

"We're really trying to find a model that operates across the whole tail," Allaire said, in reference to the "Long Tail" idea that lower distribution costs of the Internet make it economically viable for smaller producers to be successful, or for someone to offer a product catering to a small niche.

Content owners can specify the ad behavior and policies. They can define policies for where ads appear, how frequently they are shown, and limit the maximum number of ads per session. Publishers can also choose to target ads by daypart, by geography, and contextually based on the metadata they supplied.

It is interesting that Brightcove covers the “whole tail” with its tools, allowing small and large publishers them to package, distribute and manage branded video assets whilst supporting three types of business models (content sale/subscription, publisher ads, brightcove network ads). The “big guys” will most likely look at using the service based on its functionality and its integration capabilities with the rest of their back-end, and will probably leverage their own advertising for the bulk of their inventory. “Small guys” will really benefit from the advertising network. Yet to be announced is the commercial model that Brightcove will adopt – since they are both a tool/service provider and ad network.

This other Clickz piece presented a great overview of the landscape, highlighting the fact that the market is tiny (< 2% of the online ad spending) but it is growing at a very rapid pace, with the combined effect of growing content inventory (user generated, MSM, VOD,…), low cost of delivery (cheap/free bandwidth, “legal” BitTorrent usage) and the multiplication of consuming devices (computers, phones, video iPods, connected TVs).