Posts Tagged ‘Foundation Capital’

Survey Says: More Pain for Startups and Venture Capitalists in Q4 2008

February 26, 2009

Today, BusinessWeek published my story based on an early and exclusive look at Fenwick & West’s survey of trends in venture capital financing from the fourth quarter of 2008. It’s the first survey I know of that digs into the gory details of the venture world from the end of last year when the recession gripped the economy.

Here’s the top of the story:
Venture Capital and Startups Feel More Pain, Study Says
Startup valuations are falling and venture capitalists are driving harder bargains, according to a survey by California law firm Fenwick & West

Like the rest of the economy, the world of venture capital and startups is starting to feel more pain from the deepening global financial crisis.

That’s the main takeaway from a new survey detailing trends in venture capital investments during the fourth quarter of 2008 by the California law firm Fenwick & West.

The survey, which analyzed the terms of venture deals for 128 companies headquartered in the San Francisco Bay Area, found that valuations are falling for startups and that venture capitalists are driving harder bargains. The silver lining: The fallout so far is not nearly as bad as it was during the dot-com bust, when hundreds of companies went under and stratospheric valuations came crashing down to earth.

Sure, there were some startups last quarter that secured a higher value on their latest investment round, such as online vacation rental site HomeAway. But, of the 128 companies that received financing, 33% of them experienced so-called down rounds, or an investment that placed a lower valuation on the company than it received in the previous round of investment. More ominous, the percentage of down rounds rose every month at year’s end, hitting 45% in December. “Each month things got worse in the fourth quarter,” says Barry Kramer, the Fenwick & West partner who runs the survey. The highest percentage of down rounds occurred in the first quarter of 2003, when 73% of the companies surveyed by Fenwick & West suffered down rounds.

With the recession worsening, most financiers and lawyers do not expect the situation to get better anytime soon. They predict valuations will continue to decline until the overall economy begins to improve. “Private values really do lag,” says Kate Mitchell, managing director with Scale Venture Partners. “More down rounds will come in 2009.”

Click here to read the rest of the story.

Silver Spring: A Growing Presence in Green Tech

February 19, 2009

Today, BusinessWeek published my story on Silver Spring Networks–the most important green technology company you’ve never heard of. Silver Spring makes digital power meters that utilities are buying up by the millions to lay the foundation for a smart electricity grid.

Here’s the top of the story:

Silver Spring: A Growing Presence in Green Tech
Its smart energy meters are winning big customers in California and an investment from Google

California’s ambitious green agenda is swiftly pushing startup Silver Spring Networks into the black. In July 2006, the Golden State leapfrogged to the forefront of the environment-friendly tech movement when regulators gave the state’s largest utility the go-ahead to spend big on so-called smart meters that can moderate energy use. Once a dumb electro-mechanical machine that garnered little attention outside a once-a-month reading, the lowly meter has become a cornerstone of energy innovation by morphing into a two-way communications device.

And thanks to a measure approved by the California Public Utilities Commission, Pacific Gas & Electric (PCG) had $1.7 billion to spend on them. To fulfill its mandate, in July 2008 PG&E tapped a digital meter technology from Silver Spring Networks in Redwood City, Calif. Over the next four years, PG&E plans to replace all 5 million of its electric meters with Silver Spring’s technology.

Smart meters are part of what’s known as the smart grid, an upgraded national power infrastructure designed to dole out energy more efficiently and make both consumers and companies more knowledgeable about their use of electricity, gas, and other utilities. The government stimulus package signed into law on Feb. 17 includes billions of dollars for smart grid technology. “Smart grid is pretty critical to the future of our company,” says Andrew Tang, senior director of PG&E’s smart energy Web division. Rolling out millions of Silver Spring meters will mark “the beginning of a smart grid solution.”

A Green Startup You Never Heard Of

Demand for smart meters in particular may make six-year-old Spring Networks the most important green technology startup you’ve never heard of. Thanks to contracts from PG&E, Florida Power & Light, and other utilities, Silver Spring boasts a backlog of orders for meters and related technology worth $500 million, a princely sum for a company of Silver Spring’s age. The company is on track to generate positive cash flow in the second half of 2009, says President and CEO Scott Lang. “We are trying to transform the power industry for the 21st century,” Lang says.

Before the government announced plans for smart grid spending, Lang says Silver Spring was on track to hit $75 million in sales this year. The company now is revising those estimates “significantly upward,” Lang says, though he won’t say by how much. Silver Spring’s backlog is expected to double in the next 12 months, he adds.

Some of the most powerful players in Silicon Valley believe Silver Spring could be one of the first home runs to emerge from the clean tech boom. The latest sign: On Feb. 9, Google (GOOG) confirmed that it made an investment in Silver Spring. Representatives from Silver Spring declined to comment, but a source close to the company says it was in the range of several million dollars.

Google Investment Builds Confidence

Last October, Kleiner Perkins Caufield & Byers, an early investor in Google, led a $75 million investment in Silver Spring. According to the National Venture Capital Assn., that brings the total raised by Silver Spring to $167.5 million. That money will help fund a global expansion and should give utilities more confidence to form a partnership with the little-known player on a critical project. “This company is potentially one of the largest outcomes in clean tech,” says Warren Weiss, a Silver Spring director and general partner with Foundation Capital, one of Silver Spring’s early investors.

Click here to read the rest of the story.

Batten Down the Hatches: Foundation Capital Warns Its Startups

October 13, 2008

On Sunday night, published my scoop on the email that Foundation Capital sent to the CEOs of its 70 portfolio companies. Grosser’s admonition is one of several warnings issued by venture financiers to entrepreneurs over the last week or two. It’s reality check time in startup land.

Foundation Capital General Partner Adam Grosser sent the email on Sep. 29, about a week before angel investing big-shot Ron Conway sent his SOS and Sequoia Capital held their now infamous come-to-jesus meeting.

In a missive gingerly titled “Thoughts on the Economic Environment,” Grosser strongly advised the startups to rethink their operating plans for 2009 with a focus on cutting unnecessary costs, raising money, and curtailing the use of debt.

“It is likely that there will be extremely limited liquidity opportunities for the next two years,” Grosser wrote. In a separate e-mail he noted that his portfolio companies are performing well.

Read the rest of the story here.