Raise Now: VC Funding For Startups At Highest Point In More Than A Decade

There is a reason it feels like everyone and anyone is raising money to build a company: They are. According to two studies, capital raised from venture capitalists by growing, private companies is at its highest point since 2001.

A study by MoneyTree pegs the total sum raised in the first quarter at $9.47 billion. By its number, that is the highest figure since the second quarter of 2001, when venture capital invested $11.5 billion. The year-ago quarter according to the study saw a more modest $6.01 billion of inflow.

A separate study by DJX VentureSource has a slightly different figure for the period, estimating total first quarter investment at $10.7 billion. It also estimates the comparative 2001 figure at $11.5 billion, however.

Regardless of which group has it more right, the trend is plain: Huge dollar amounts are up for grabs at the moment, as investors look to pour capital into companies of all stages while the NASDAQ is high, the IPO window is open, and cash-rich industry titans are more than willing to buy talent and products alike.

Bubble? It depends on who you ask, but I doubt anyone can say with a straight face that we’re living in financially conservative times. Cracks have appeared, with Square delaying its IPO, Box’s S-1 raising questions, and King’s offering struggling to find traction. But that hasn’t stopped others from going public and taking on new cash.

Signs of the times abound.

All that said, it’s important to keep scale in mind. Note the above stats indicate that we’ve reached mid-2001 levels of investment. That says nothing about how high investment was before, naturally. BusinessInsider, in a post aptly entitled “Venture Capital Funding Is Nowhere Near The Levels We Saw During The Dot-Com Bubble,” published the following chart [data is from the above-cited MoneyTree study]:

Venture capital investment is therefore at record levels when you compare backwards to any moment before the massive implosion of 2001, but remains dwarfed by prior excesses.

A few data points: Pre-2008 crash, venture investment topped out at $8.45 billion in the fourth quarter of 2007. It topped $28 billion in both the opening quarters of 2000. That’s a pace of around three times the investment we are seeing now, and funds are often going to larger, more established companies with nine-figure revenues.

The market is not in perfect balance, and there is quite a lot of stupid money bouncing around funding foolishness. But the total dollar figure for the first quarter of 2014, given how top-heavy it is toward mega deals for late-stage companies, likely isn’t a reason in and of itself to panic.

IMAGE BY FLICKR USER  Luz Bratcher UNDER CC BY 2.0 LICENSE (IMAGE HAS BEEN CROPPED)

Station 12 Is Raising $250M To Fund European Media Tech Startups’ Growth Rounds

Add a new VC to the ranks in Europe: Station 12 is raising £150 million ($250 million), which it plans to invest in Series A and B rounds in the future Netflixes and Maker Studios of the world — in other words, startups in Europe that straddle the media, entertainment and technology verticals. Average initial investments will be around £10 million.

The news comes on the heels of another European fund unveiled earlier this month from Balderton: $305 million for seed and early-stage investments.

Station 12 — named after a 1940s UK intelligence hub – is being led by Patrick Bradley, the former CEO of Ingenious Ventures, which has a similar portfolio approach to Bradley’s new venture. Notable exits there include the gaming company Lionhead Studios sold to Microsoft and Cream sold to Live Nation; investments include the property search platform Property Network and Two Way Media, which develops interactive services for TV programs.

Ingenious Media, under the direction of a new Patrick (Patrick McKenna), will be a “supporter” of Station 12, without specifying what that will mean, but potentially may point to co-investments or other collaborations.

Bradley tells me that Station 12 is currently laying “strategic cornerstones”, with the formal fundraising to start in early summer. He says he’s “absolutely confident” of the target size of the fund. “There is huge interest in the area where entertainment and media meet technology, partly because of the overall view of the tech sector, which a lot believe that is overvalued,” he tells me.

At the same time, there are a couple of other opportunities Station 12 hopes to seize. The first of this is the maturation of business models based around technology. “The market is moving back towards quality content, towards what is glueing users to these tech platforms,” he says.

The second is the fact that there is still a sizeable funding gap in Europe for startups that are looking for their next stage of growth. “In the U.S. you have deep pockets with capital available from startup to mid-stage rounds,” he says. “But in Europe, there is a shortage of capital from Series A onwards. You have a cohort of youg businesses coming up that will reach Round A or B, and want to raise in the £5 million-£15 million range, but there is a shortage of that in Europe.”

That predicament has found a willing complement in the U.S. up to now for tech startups: European startups that have established a product often turn to the U.S. not just for funding but also to “crack” the U.S. market, with the two effectively going hand-in-hand.

But Bradley believes that startups in the entertainment/media/tech category that Station 12 is addressing have an opportunity to develop differently, with strength gained by focusing here instead. “Europe is the largest media market outside of the U.S., and you’ve only got to look at the Nordics to see how successful they’ve been in gaming and media,” he says. “Investors are waking up to this and realising that they should be allocating more to this market because it’s huge.”

In some regards, you can see how media and entertainment plays may have an advantage by focusing first in specific regions — and Twitter’s recent acquisitions of social TV startups in the UK (SocialSync) and France (Mesagraph) demonstrate that this focus can eventually be a value in itself.

So Station 12 will be meeting that focus by backing companies where it can be a regular advisor. “As a startup, you want to be close to your investor, and right now there aren’t that many funds that will get on a place to Berlin or London to see your portfolio companies that frequently. There is an opportunity in Europe for a VC that understands the European environment and culture and helps the company link up in the wider world.”

Image: Flickr

Station 12 Is Raising $250M To Fund European Media Tech Startups’ Growth Rounds

Add a new VC to the ranks in Europe: Station 12 is raising £150 million ($250 million), which it plans to invest in Series A and B rounds in the future Netflixes and Maker Studios of the world — in other words, startups in Europe that straddle the media, entertainment and technology verticals. Average initial investments will be around £10 million.

The news comes on the heels of another European fund unveiled earlier this month from Balderton: $305 million for seed and early-stage investments.

Station 12 — named after a 1940s UK intelligence hub – is being led by Patrick Bradley, the former CEO of Ingenious Ventures, which has a similar portfolio approach to Bradley’s new venture. Notable exits there include the gaming company Lionhead Studios sold to Microsoft and Cream sold to Live Nation; investments include the property search platform Property Network and Two Way Media, which develops interactive services for TV programs.

Ingenious Media, under the direction of a new Patrick (Patrick McKenna), will be a “supporter” of Station 12, without specifying what that will mean, but potentially may point to co-investments or other collaborations.

Bradley tells me that Station 12 is currently laying “strategic cornerstones”, with the formal fundraising to start in early summer. He says he’s “absolutely confident” of the target size of the fund. “There is huge interest in the area where entertainment and media meet technology, partly because of the overall view of the tech sector, which a lot believe that is overvalued,” he tells me.

At the same time, there are a couple of other opportunities Station 12 hopes to seize. The first of this is the maturation of business models based around technology. “The market is moving back towards quality content, towards what is glueing users to these tech platforms,” he says.

The second is the fact that there is still a sizeable funding gap in Europe for startups that are looking for their next stage of growth. “In the U.S. you have deep pockets with capital available from startup to mid-stage rounds,” he says. “But in Europe, there is a shortage of capital from Series A onwards. You have a cohort of youg businesses coming up that will reach Round A or B, and want to raise in the £5 million-£15 million range, but there is a shortage of that in Europe.”

That predicament has found a willing complement in the U.S. up to now for tech startups: European startups that have established a product often turn to the U.S. not just for funding but also to “crack” the U.S. market, with the two effectively going hand-in-hand.

But Bradley believes that startups in the entertainment/media/tech category that Station 12 is addressing have an opportunity to develop differently, with strength gained by focusing here instead. “Europe is the largest media market outside of the U.S., and you’ve only got to look at the Nordics to see how successful they’ve been in gaming and media,” he says. “Investors are waking up to this and realising that they should be allocating more to this market because it’s huge.”

In some regards, you can see how media and entertainment plays may have an advantage by focusing first in specific regions — and Twitter’s recent acquisitions of social TV startups in the UK (SocialSync) and France (Mesagraph) demonstrate that this focus can eventually be a value in itself.

So Station 12 will be meeting that focus by backing companies where it can be a regular advisor. “As a startup, you want to be close to your investor, and right now there aren’t that many funds that will get on a place to Berlin or London to see your portfolio companies that frequently. There is an opportunity in Europe for a VC that understands the European environment and culture and helps the company link up in the wider world.”

Image: Flickr

“Code And Canvas” Unites SF Startups And Artists Under One Weird Roof

Fast-rising rent was about to force a dozen artists out of their studios in San Francisco. But it turns out all that tech money that’s gotten so much hate lately can actually do some good. Four entrepreneurs leased the whole warehouse, let the artists stay, and renovated the place. Now there’s enough room for at least five startups to move in to what the founders are calling Code And Canvas.

This co-working and creative warehouse could create a model for how tech workers in the Bay area can take the rent crisis into their own hands.

Restrictive zoning laws and entrenched property owners have strangled the supply of housing and working space in San Francisco. As the tech industry booms, thousands of engineers, designers, marketers, and managers have flocked to the city, exacerbating the problem. The result has been rapidly rising rent that’s forcing out long-time residents, and widespread malice towards technologists that has culminated in protests of company shuttles.

But while there are certainly some tech workers who are happy to collect their fat checks at the expense of their new neighbors, others want the community to retain its artists, families, and heritage. Those include Code and Canvas founders Nik Ajagu of Facebook and Ecosystem Ventures, Gi Fernando of Free:Formers and Techlightenment, Jeff Miller of Punchfork and Pinterest, and John Yi of Pinterest, Facebook, and US Army Special Operations.

Yi told me the story of how a family had owned the Code and Canvas warehouse for 30 years and was generous in keeping it affordable for the artists who worked there. Eventually, the family needed to bring the rents closer to market rate, though, which would have pushed out the artists. Luckily, a friend asked if Yi wanted to rent a desk as he’s an aspiring novelist on the side. That wouldn’t be enough to pay for the whole space, though, so Yi brought the other founders together to create Code and Canvas.

Unlike other tech co-working dens that may be displacing local culture, Code And Canvas tries to bring it in-house. “It’s definitely industrial, but that’s part of its charm” Yi tells me. Yi says the space is designed so the artists and entrepreneurs have physical proximity and will commune around the proverbial water cooler. Also, “We’ve architected the entire space so all the walls fold over to use the main area as one massive continuous space for events that will be curated by artists, architects, and graphic designers.”

Artists who occupy Code And Canvas include Calixto Robles, a Oaxacan-born painter (whose work is featured atop this article), and Marlene Aron (seen below), a poet and sculptor that does site-specific installations. 

Yi says the anger pointed at the tech industry and the tales of its especially insensitive members seem “a little overblown…a little anecdotal” to him. But he’s sensitive that the tech boom is causing real hardships for other people in the bay. “If even 1 or 2 or 10 people are getting moved out because of [real estate] profiteering, that sucks.”

The city certainly doesn’t need tech workers thinking of themselves as saviors of the local artists, but that’s not how Yi came off. He seems legitimately concerned about his industry can be obsessed with “short-term quarterly revenues” instead of compassion. That’s why Code and Canvas’ principles center around craft, mastery, cross-pollination, and an endeavor to improve lives. It’s not just about tech and workers co-existing peacefully, but actively inspiring each other.

When Startups And Revolutions Collide

In the last two months, tiny Silicon Valley startups have proven their ability to upset the well-laid plans of autocrats half a world away.

Just this week, Turkey’s Prime Minister, Recep Tayyip Erdoğan, failed spectacularly at banning Twitter, as local citizens found easy workarounds with tech tools, skirting blocks with tens of thousands of tweets mocking the impotent censors.

“I think that startups can perform functions once reserved to government, but they are well-served to be as educated as possible before they wade into foreign affairs,” Secretary Hilary Clinton’s former senior adviser, Alec Ross, writes to me.

The State Department is no longer the only bridge between a pajama-clad hacker and dissidents in the Middle East. Anyone with an Internet connection can wade into the dicey diplomatic waters of revolution, once reserved for governments. This new unregulated power has its promises and perils.

Turkey’s Backfire

In Turkey, anti-censorship tech has thus far provided a safe and almost embarrassingly easy workaround for clumsy government censors. Erdoğan brazenly threatened to “wipe out” Twitter after courts approved a ban on the micro-blogging service for hosting anti-government content.

Almost immediately after the ban was instituted, information for workarounds spread virally. Twitter announced a text-messaged-based workout:

Citizens sprayed graffiti instructions to subvert censors through Google’s alternative routing system (DNS):

Mobile app downloads for software that secretly funnels traffic into servers outside of the host country (a virtual private network) spiked. The most popular, Anchorfree’s Hotspot Shield, went from 10,000 to 270,000 downloads in 12 hours, according to statistics provided by the company (screenshot of the Turkish app store below):

Free from the shackles of the government censors, Turkish users flooded Twitter with roughly 17K tweets a minute, breaking a new record, according to The Guardian. Below is a graph provided by Brandwatch of the number of tweets before and after the ban.

And, then, the mocking of the efforts to quash the service began:

“This is an attempt by Erdoğan to control an uncontrollable space,” Ross explained to me.

So far, anti-censorship tech has been safe and effective, but that might not last for long and it certainly doesn’t hold true for all countries.

Mission And Caution

Like many startup optimists, Anchorfree is out to change the world. “AnchorFree is a mission-driven company, with a mission to provide secure access to the world’s information for every person on the planet,” writes founder David Gorodyansky to me.

But, giving people access to the Internet can encourage unintentionally risky behavior. “I’d encourage Turkey’s Twitter users to be careful about how they access Twitter, even if access is restored. Syria also restored Twitter access just before the revolution and used it to identify protesters,” writes Ian Schuler, founder of Development Seed and a former State Department Official. Indeed, during last Summer’s protests, Turkish authorities arrested 25 dissidents for the high crime of using Twitter.

Skirting government censors has traditionally been a cat-and-mouse game with the select group of activists willing to fight back; cryptographers rarely design software to be used on the same country-wide scale as Angry Birds.

The go-to solution for activists has been less-than-user friendly, open-source apps such as TOR, a free set of tools for anonymous browsing. Many of the experts we spoke with only trust non-commercial software. Speaking about Anchorfree, Enrique Piracés of the human rights technology groupBenetech, wrote to me, “Their solution seems to be convenient and cost-effective, and some of their features are very clever, but unless there is access to the source code it is hard to think of it as secure or trustworthy solution.”

In other words, commercial products may sacrifice security for usability. Encryption was never meant to be a one-click process. Andrew Lewman, executive director of the TOR project, told me “Free and open source software at least gives someone the ability to review, improve, and audit the code on which the app is based.”

Ross, an adviser to Anchorfree, says that he believes the company has done its due diligence on the security side and that commercial products have an important role to play. “I understand the bias toward open source, but one ought not take a religious view on the question of what can best help dissidents.”

Indeed, it seems that in the heat of the moment, citizens-turn-dissidents just grab anything that’s available. One Venezuelan activist we spoke to described how he came upon anti-censorship tech during protests last February.

“The choice of the app in this case did not depend on the brand (because there are several apps that offer pretty much the same service)… It was just a matter of grabbing a VPN app to avoid the block the government was imposing! I just learned about this app when everything started (Feb. 12th). Before that… I just did not know about VPN apps. I just installed it and it worked perfect!”

The upshot is that the majority of users in these situations are novices and don’t completely understand the risks. Easily downloadable software is great for feeding the ranks of grassroots protests, but it puts the onus of security on startups.

Disaster and Calls to Action

“If a technology is not secure or a strategy is unsound, it can get people killed,” warns Ross.

Project Haystack was one such road to disaster paved with good intentions. When a 26-year-old Ohio-born hacker developed anti-censor tech for Iranian dissidents in 2010, he never thought it would paint a big red target on the backs of its users. After serious security holes were discovered, Haystack was immediately taken off the market. “If you have a copy of the test program, please refrain from using it,” the makers warned users.

At the mass scale of country-wide revolutions, awkwardly designed tools don’t cut it. Dissidents will grab whatever they can find, and that’s usually the same places they go to download Words with Friends. So, there’s a huge opportunity for startups to help, but it means also a margin of error is as thin as a knife’s edge.

“My advice is for startup activists to confer with officials in government not necessarily for approval,” says Ross, “but for situational awareness that can help inform their strategies.”

A May-December Media Strategy Could Help Locally Focused Startups

Editor’s note: Jonathan Sills is an executive in residence at Battery Ventures, where he helps advise portfolio companies on marketing strategy. Battery is an investor in Relay Foods and HotelTonight.

In Silicon Valley, it’s sometimes easy to focus solely on social and other types of cutting-edge, digital advertising when advising startups on their marketing strategies. But these businesses, particularly those serving specific geographic markets, can also amp up customer acquisition by combining their Facebook, Twitter and Pinterest strategies with old-school, traditional media marketing campaigns.

Radio spots. Local newspaper ads. Billboards. Cable airtime. These are all time-tested tactics for companies trying to acquire new customers, but they’re often looked down upon as liver-spotted has-beens in the thumping nightclub of today’s digital and data-driven marketing environment.

Detractors say these old-codger strategies lack the flexibility, adaptability and low-entry cost of a self-service cost-per-click (CPC) campaign. But it doesn’t have to be this way. Based on recent testing, I’m convinced that a certain kind of retro/digital mashup — a May/December marketing romance, if you will — can pay real dividends for startups willing to experiment and look past their first impression.

Retro meets digital

Consider Candy Crush Saga, King.com’s megahit game for mobile and tablet devices. Launched in November 2012, it quickly attracted a massive following fueled not only by organic and viral distribution online, but also relevant mobile advertising. Data collected by iSpot.tv and other third-party sources shows that Candy Crush then took its marketing retro: In March of last year, King began layering national cable advertising onto its marketing strategy, and significantly ramped up those TV buys in the subsequent quarter.

These commercials showed up on old-school networks like Game Show, TV Land, and the Hallmark Channel (Little House on the Prairie, anyone?). iSpot estimates Candy Crush aired 4,515 national cable spots in all (a lot!). The program that featured the most Candy Crush ads? Re-runs of the late ‘80s hit “The Golden Girls.”

Another innovative May/December strategy is the one recently pursued by Relay Foods, an online grocery retailer for natural and sustainable foods based in Charlottesville, Va. Right now, the company operates in only a handful of metro areas throughout the mid-Atlantic region. So it has to think locally when it comes to advertising to its target customers: educated, affluent women who love attending the farmers’ market but rarely have time.

Until recently, Relay acquired new customers mainly through branded delivery trucks that drove around its target markets, as well as word of mouth and targeted “street teams” that canvassed public spaces and offered Relay gift cards. But the company wanted to find new ways to amp up customer acquisition without breaking the bank.

The company tested almost a dozen different tactics, but finally hit upon an old-school/digital hybrid strategy that worked. On the digital side, the team ran CPC campaigns on Facebook with page-post ads that linked back to the Relay site. These spots targeted women 25 and older in the geographies Relay serviced and were purchased at around a one-dollar cost per click.

On the retro side, the team tested running “remnant” ads on local radio stations. These were inexpensive time slots that were discounted because they “remained” after other advertisers bought specific inventory but still hit the target audience. In Richmond, Relay paid about $25 on average for a traditional, 60-second radio ad, which meant the company could run 200 spots a week for $5,000. This gave Relay a pretty heavy mass-media presence in that market. It also cost far less on a CPM basis than what the company was quoted by digital-music service Pandora for ads targeting the same region.

Finally, Relay topped off the campaign with retargeting, working to re-engage and convert potential customers who didn’t sign up immediately, through both Facebook’s exchange and the broader web.

The results? The company started averaging about 1,000 new customer acquisitions a week, up from fewer than 100. Sales, gross margin and contribution margin shot up, and Relay was able to mine this radio audience for months before shifting back to a mostly digital strategy.

Print style

Even out-of-home advertising — the good old billboard in all its current forms — can help complement cutting-edge, drive-to-app and mobile web advertising campaigns.

HotelTonight, the last-minute hotel-booking app that services over 250 destinations around the world, recently was able to secure billboard placements in select airports at a fraction of the normal price. This was really an endemic placement for them, since business travelers represent a core user base.

Similarly, VistaPrint, the e-commerce leader selling business cards, stationery and marketing collateral, among other items, has for many years maintained a dual presence on digital and traditional media. One of the company’s arguably octogenarian tactics that I’ve admired from afar is the use of package inserts, which are printed offers placed inside the shipping box of an online, catalog or TV order.

Carrying an implied endorsement, they cost much less to get into people’s homes than individually addressed direct mail and can scale significantly. It seems like a great fit for VistaPrint, and Relay Foods also has used remnant alternative print channels successfully (with a regional distribution focus of course).

I could also see companies combining content syndication campaigns on Outbrain or Taboola with remnant print-newspaper ads, or Twitter with local cable. These types of mash-ups may become more common as we see other online/mobile companies build businesses serving particular cities or geographic areas, at least early in their life cycles — provided those target customers reside in the same markets. So this strategy would work better for local-meal delivery, for instance, than it would for car rental.

Old-school strategy pay-off

Yet many companies don’t consider old-school, local marketing because 1) it seems too outdated, and 2) it can actually be more expensive compared to national advertising, at least in audience-adjusted terms. Car dealers, restaurants and furniture stores traditionally have inflated the costs of such advertising, since they’re essentially held hostage to local media and may not apply a strict ROI lens to their media buys as they try to achieve strong reach in certain metro areas.

But by strategically marrying inexpensive, remnant local advertising with a well-thought out digital campaign — then spreading retargeting on top, like the icing on a wedding cake — online businesses can dramatically boost customer acquisition. And that’s a love story both young and old marketing professionals can embrace.

Image by ischte/Shutterstock