After the bloom has departed from Internet venture capitalism, it ‘seems’ easier to attract initial and/or follow on co-investment for and in companies who focus on (Internet infrastructure) products than on (yet another revolutionary) e-commerce service or business. This trend will probably accelerate if and when amazon.com will crash (a 50/50 chance, in my opinion).
We began by weighting our investment strategy with a 60% focus in the infrastructure IP space; however, I think we have a) deviated from our investment strategy and b) should increase the % focus on our investment strategy.
Some of our portfolio companies have problems defining whether they are a product or service or even -worse- flip flop, on the issue, e.g. Netactive, VocaLoca or Zmarket.
- Zmarket has changed its model and desperately grabs ‘any customer’ to show something. We will run out of money (and luck) with both VocaLoca and Zmarket soon. Both companies lack focus on what their real target market and customer base is.
- Netactive is grappling with these questions, e.g. consumer vs business or rights management vs audience management or shrink wrap vs licensing and on and on. We are a long shot away from building (or having) a decent customer base. With Netactive, we were lucky enough to have had the initial investor base come from Canada and provide enough early funding.
The only current portfolio companies which are a right “fit” in their category, are:
- defined by product: SAN Valley, Coactive
- defined by new business or service : none
You saw how quickly TPG jumped on SAN Valley but has declined everything else so far we proposed to them because it’s foggy. We might like VocaLoca but nobody else does – even in the music sector (bizarre!!).
We might still see some of the big sisters “investing” heavily in a new startups, but possible only because it’s their deal, their idea and their relationship with the original team, (e.g. the airline ticketing deal TPG is cofunding). If we, Upstart Capital, invite them for a follow-up investment, this will only work if and when our portfolio company has a clear direction, clear business model, a real early (substantial by name) customer base and the rest of the usual stuff (technology in place, team in place etc etc)
If you watch Mahi, Mayan and a bunch of others, it will become clear, right?
The relationship we have with France Telecom’s Innovacom is nice (and don’t lose it), but it is too cozy to meet the real fire test in a business sense.
Source: Michael Spindler