Tagged: vc

Figure out how to monetize mobile

KPCB‘s Mary Meeker did a terrific presentation at D10 last week. You can go over the deck yourself, it’s available below.

I’ll point out some of the highlights:

  • 1.1B Global Mobile 3G Subscribers, 37% Growth, Q4 – @ Only 18% of Mobile Subscribers. Impressive 29% of USA Adults Own Tablet / eReader,Up from 2% Less Than Three Years Ago. Despite Tremendous Ramp So Far,Smartphone User Adoption Has Huge Upside.
  • Global Mobile Traffic Growing Rapidly to 10% of Internet Traffic
  • Rapidly Growing Mobile Internet Usage SurpassedMore Highly Monetized Desktop Internet Usage in May, 2012, in India
  • eCPMs 5x Lower on Mobile than Desktop
  • ARPU (Average Revenue per User) 1.7-5x Lower on Mobile than Desktop

It seems that monetizing mobile went from being an opportunity to a necessity for survival.

KPCB Internet Trends 2012 by Kleiner Perkins Caufield & Byers

FB

Credit: Zef Nikolla

Today Facebook became a public company. This is not only a great moment for social media but for venture capital, Silicon Valley and entrepreneurship.

Congratulations to all of you who made it happen. Thanks for keeping the dream alive.

Crowdfunding as an alternative to bootstrapping or venture capital?

This week, industry veteran Tim Schafer (Day of the Tentacle, Full Throttle, Grim Fandango), managed to raise $3,336,371 to fund his next game. Crowdfunding is now so popular, especially for games, that there was even a session at GDC 2012.

So far, however, crowdfunding has been mostly a way to fund projects with unclear commercial potential. What we haven’t seen yet is a startup that uses crowdfunding as essentially a “free” series seed. Entrepreneurs could prove there is a market for their product and get customer feedback.

I am sure it will not take too long.

If you never saw the video Tim used to raise funds, here it is:

Farmville treeconomics: is this going too far?

[digg=http://digg.com/playable_web_games/Farmville_treeconomics_is_this_going_too_far]

The farmville date tree. Fill a square with 16 of them and you have a great investment.
The farmville date tree. Fill a square with 16 of them and you have a great investment.

Fred Wilson blogged recently about Zynga, the #1 social gaming company, looking for talent  in Wall Street. He should know, he’s a Managing Partner at Union Square Ventures, one of the VC firms backing the company. I am sure that to many this might seem strange but it shouldn’t. You can put an MBA to good use just to play Farmville.

Adam Nash did just that. He took Farmville economics a step further in his last two posts and Lisa Chan at Zynga took good note of it. The next task in his list is figuring out the economics of trees. I thought I would give it a try.

Like in any financial model we’ll start with a couple of assumptions:

  • Investment period and residual value: like Adam said, people will not be playing Farmville in 2020. Given that the “investment cycle” is daily I thought it was fair to assume that the tree is sold for its residual value after 90 days.
  • Discount rate: I’m a huge supporter of using the NPV investment rule. The problem with this is, like I said, that we have to now find an adequate discount rate. To simplify and given that Adam’s initial analysis was not done on a bang per buck basis, I’ll just do a comparison of investments.
  • Available investments: I still need to level up! Also other trees are available as gifts but cannot be purchased. I’ll base the analysis on the trees I have available to purchase.

First we’ll compare the trees among themselves to see which one has the highest daily revenue:

Cost Revenue/Harvest Days to Harvest Daily Revenue Daily Rev/ Invested $ Days to Payback
Date $800.0 $69.0 3 $23.00 2.88% 35
Lime $750.0 $75.0 5 $15.00 2.00% 50
Lemon $475.0 $41.0 3 $13.67 2.88% 35
Peach $500.0 $47.0 4 $11.75 2.35% 43
Fig $350.0 $33.0 3 $11.00 3.14% 32
Plum $350.0 $30.0 3 $10.00 2.86% 35
Orange $425.0 $40.0 4 $10.00 2.35% 43
Apple $325.0 $28.0 3 $9.33 2.87% 35
Cherry $225.0 $18.0 2 $9.00 4.00% 25

The date tree is the winner, but if we were to rank it on a daily revenue per dolar spent basis (bang per buck) it would look quite different:

Cost Revenue/Harvest Days to Harvest Daily Revenue Daily Rev/ Invested $ Days to Payback
Cherry $225.0 $18.0 2 $9.00 4.00% 25
Fig $350.0 $33.0 3 $11.00 3.14% 32
Lemon $475.0 $41.0 3 $13.67 2.88% 35
Date $800.0 $69.0 3 $23.00 2.88% 35
Apple $325.0 $28.0 3 $9.33 2.87% 35
Plum $350.0 $30.0 3 $10.00 2.86% 35
Orange $425.0 $40.0 4 $10.00 2.35% 43
Peach $500.0 $47.0 4 $11.75 2.35% 43
Lime $750.0 $75.0 5 $15.00 2.00% 50

As a side note, also the crops would look different on a bang per buck basis:

Daily Investment Daily Profit Daily Rev/ Invested $
Super Berries 300.0 900 300.0%
Watermelon 36.3 51 140.0%
Artichokes 21.3 30 140.0%
Wheat 16.7 22 130.0%
Cotton 30.0 39 130.0%
Pineapples 55.0 66 120.0%
Yellow Bell 45.0 54 120.0%
Squash 27.5 33 120.0%
Eggplant 20.0 24 120.0%
Soybean 30.0 33 110.0%
Pepper 85.0 77 90.6%
Rice 120.0 72 60.0%
Pumpkin 135.0 69 51.1%
Blueberries 390.0 156 40.0%
Strawberries 150.0 60 40.0%
Raspberry 420.0 132 31.4%

Back to our analysis. Let’s compare a 90 day investment in a square full of date trees with some crops. Believe it or not, 16 date trees can be squeezed in a square.

Daily Profit Total Profit Initial investment Residual Value Profit
Super Berries $900.0 $81,000.0 $81,000.0
Date tree square $368.0 $33,120.0 $12,800 $640.0 $20,960.0
Tomatoes $174.0 $15,660.0 $15,660.0
Raspberries $132.0 $11,880.0 $11,880.0

Does a date tree square make sense? Sure. The catch? A square full of date trees costs 12,800 coins, you need 35 days just to pay the investment back. If you are looking to optimize your farm on a per square basis it’s perfect. Given that space and not coins is the key constrain in Farmville, it does make sense. Also, the longer the investment period, the better it will look.

Is this over-analyzing and going too far? Maybe, but in a blog about digital media, gaming, VC and randomness, this post fits great. If you need financial modeling to Excel at these games (pun intended), you do need to look in Wall Street to manage them.

Update: you can now see the analysis for Farmville animals here.

Super Berries 300.0 900 300.0%
Watermelon 36.3 51 140.0%
Artichokes 21.3 30 140.0%
Wheat 16.7 22 130.0%
Cotton 30.0 39 130.0%
Pinneaples 55.0 66 120.0%
Yellow Bell 45.0 54 120.0%
Squash 27.5 33 120.0%
Eggplant 20.0 24 120.0%
Soybean 30.0 33 110.0%
Pepper 85.0 77 90.6%
Rice 120.0 72 60.0%
Pumpkin 135.0 69 51.1%
Blueberries 390.0 156 40.0%
Strawberries 150.0 60 40.0%
Raspberry 420.0 132 31.4%

The iPhone apps VCs want to see

I just came back from the iPhoneDevCamp where Chi-Hua Chien, a partner at Kleiner Perkins Caufield & Byers and Stanford GSB alumn,  was the Friday keynote speaker.

Chi-Hua is actively involved in the iFund, KPCB’s $100 million iPhone investment fund.

Chi-Hua first gave a quick overview of how the iFund came to be and how it is going today.

I found particularly interesting  where they think the big iPhone hits will come from, the big ideas:

  • Mobile commerce
  • Real time everywhere and anywhere
  • Local search
  • Healthcare
  • Augmented Reality
  • Real-world gaming

Chi-Hua was quite disappointed by the fact that most of the current top apps fail at the three criteria he values most:

  • innovation
  • value creation
  • significance

These criteria and the previous themes frame pretty well the iPhone apps VCs want to see. Unfortunately, right now the top free app is probably the opposite: Do Not Press the Red Button. The market (and hopefully some intervention from Apple) will certainly correct this with time, just like it in the case of Facebook applications.

Update: the slides of his presentation are now available below:


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Cleantech VC investment: how big the rebound?

[digg=http://digg.com/business_finance/Cleantech_VC_investment_how_big_the_rebound]Yesterday Ernst & Young published a report on cleantech VC investment that is creating some buzz online. As a follow-up to my previous post, I want to put this report into perspective by comparing it to the VentureSource and PwC/NVCA Q2 reports.

The key findings of the E&Y report are:

US venture capital (VC) investment in cleantech companies in Q2 2009 reached $572 million, an increase of 73% in terms of capital, with 48 financing rounds, a 100% increase in number of transactions compared to Q1 2009. [...] Compared to Q2 08, the second-highest quarter for cleantech investment on record, the Q2 09 results were 59% and 16% below those record levels in terms of capital and number of transactions respectively.

The PwC MoneyTree report was positive but not to the same extent:

The Clean Technology sector, which crosses traditional MoneyTree industries and comprises alternative energy, pollution and recycling, power supplies and conservation, saw a 15 percent increase in dollars over the first quarter with $274 million going into 42 deals. The number of deals completed in the second quarter remained flat compared to the first quarter. These investment levels remain a fraction of the dollars invested in Clean Tech in 2007 and 2008.

Finally, the VentureSource report is clearly negative:

Investment in the renewable energy sector, which makes up the backbone of the industry-spanning “cleantech” category, fell substantially with just $221 million invested in 16 deals in the quarter, a 75% decline from the $897 million invested in 30 similar deals in the same quarter last year.

What is surprising is that the Ernst & Young LLP analysis is based on data from Dow Jones VentureSource. Apart from the differences in the definition of the categories, what can explain these discrepancies?

Note: this article was crossposted on Seeking Alpha.

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Venture Capital trends: sorting through Q2 2009 statistics

Everybody agrees that the venture capital industry is going through it’s worst fundraising  time since 2003, but the statistics regarding deal investing vary. Let’s see if we can sort through conflicting Q2 2009 statistics.

VentureSource and PwC/NVCA, two top references to track VC investing, published their Q2 reports on US VC investing earlier this week. According to VentureSource, Q2 saw 595 deals for a total of $5.27B. According to PwC/NVCA, Q2 saw 612 deals for a total of $3.7B. While the number of deals is similar, the amounts are clearly different. By studying the reports further what we can however see that they agree on the key trends:

  • After several quarters of decline, investing rebounds in Q2 2009
  • In spite of the improvement, investing is still down to the levels of 2005
  • Healthcare is the strongest industry, online services is the weakest
  • Geographically, Washington State seems to be going strong

The key trends above can give us a solid understanding about the current state of the VC industry but we still have to be cautious. Unlike funding, which is in the hands of the limited partners, investing depends on the VC firms and the available deals. It is also worth noting that everywhere else around the world the rebound did not happen yet. VC investing actually saw a decline of 63% in Q2. We will probably have to wait until 2010 for that rebound to happen.

Note: this article was crossposted on Seeking Alpha on 7/24/09.

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