Marcelo Calbucci posted a link to a TechCrunch scoop broke the news this morning on Seattle 2.0 that Right Side Capital announced that they will be investing seed-stage startup money in 100-200 startups a year.  That’s a lot.  Marcelo links to this Tech Crunch article, which gets into a lot more detail about the announcement and the context in which to place it.

Already startup types are starting the debate about whether this (a) is game-changing after all, (b) will work, or (c) misses the boat on some other criteria.  For the most part the reaction is positive – an evolution / revolution in the classing funding model seems overdue, especially given the drought we went through in the last couple years.  And a  new approach driven more by metrics and less by relationships is … well, interesting, if not necessarily a sure thing.  It will be fun to watch during the lead-up to the funding announcements this summer, and then see what the growth and recapitalization requirements of the original set of companies looks like.

Putting this announcement in a personal context, what would it take for me to get Crowdify off the ground?  Four months of funding?  Six months?  Twelve?  It’s so hard to say, since I have yet to do the hard grunt-work of proving out the market with real live interested customers.  It could be that the first three brand managers I talk to all love it and want to throw business my way.  It could also be that it will take a year and thousands of phone calls / e-mails to get to my first five-figure deal.  Traditional VCs would want to know that the market was there to capture FIRST, before putting any money in, and I can’t fault them.  However, we’ll see if Right Side Capital’s new approach will work, and if it does, what it means to other “idea entrepreneurs” who need time and space to execute.

Interested in your thoughts.

From Northwest Innovation:

The Washington Technology Industry Association (WTIA) has released its latest venture capital survey for first quarter 2010, showing that local venture capitalists are expecting to see moderately higher deal flow this quarter, with a significant amount believing their portfolio companies will see moderately better revenue growth this year.

Full story at http://www.nwinnovation.com/fullstory/0026441.html

Interestingly, I don’t see the report on the WTIA site – I hate it when web and PR aren’t coordinated like that.  Convergence, people!  Synchronization!  Real-time news!  Information at your fingertips! (Wasn’t that a Bill Gates phrase?).  My attitude is: if you’re a high-tech company, your press releases should be up on your website the minute you send them out via other means.  Oh well.

Overall, I get a sort of tepid feeling from the survey numbers – it’s better than last year, for sure, but I still don’t get any sense that the reins have been loosed and deals are going to start dropping on anybody with a napkin, a pen, and a bright idea.

Seattle-area social media monitoring firm Visible Technologies lands a huge Series C round:

Bellevue-based Visible Technologies said Wednesday that it has scored a $22M, Series C funding round for the firm’s social media monitoring software. According to Visible Technologies, the round was led by new investor Investor Growth Capital, and also included prior investors Centurion Holdings, Ignition Partners, In-Q-Tel and WPP.

That’s a good result for a company that has always seemed to be able to stay near the top of a competitive space.  Congratulations to the Visible team!

Greg over at Xconomy commented on the Visible funding news about 17 hours ago.  Interesting to note that the top goal of the company for the use of the new funds is to drive global expansion.  I’m not a great tea-leaf-reader (I think), but what that tells me is that Visible has matured to the point where they are thinking long-term market leadership, and obviously global is a component of getting and staying on top.

Also, interestingly, from a link on the Xconomy piece I found this blog  post which has some pretty negative things to say about social media monitoring in general.  Food for thought, but I don’t agree with the writer.  Social media monitoring has its place in our newly interconnected world and if it brings up problems like “hounding” or “silencing” of critics, well, then that’s a different problem to solve.  Merely getting information in front of people – accurately and quickly – is not grounds for disqualification of the entire segment.

Great post this morning from Hank Williams, in which he says:

In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

He’s got a great point. I’ve been thinking about startups solely within the context of “how can I provide something immediately profitable” for this very reason – I’m not interested in taking on $MM of VC money solely to get an exit. I’d like to start and grow a sustainable business, which means attracting paying customers from Day 1.

I’ve been working in professional services for a long time, which attacks this problem using the equation (labor = money), but, as Joel Spolsky points out, (labor = money) doesn’t scale. Software as a product or SaaS offering does. But there’s little revenue in small-scale advertising. It’s like we’re all chasing our economic tails:

• Consulting doesn’t scale
• So, move to product
• Product isn’t profitable, because of the “free” mindset
• So, move to consulting to bring in revenue
• etc.

The bottom line (for me, at least this morning)? Relentless focus on adding value that people will pay for. If you can’t get there, you’re essentially competing in the VC lottery with other people who have a lot more money they’re willing to lose.

In this morning’s Seattle P-I is a new venture article from John Cook in which he reports that Jeff Schrock, former Real Networks / Yahoo executive, is joining local venture firm Monster Venture Partners.

Cook writes:

Monster Venture Partners is taking a different approach than the big venture firms of Silicon Valley, investing personal funds and doing so in small increments of $300,000 to $1 million. That concept appealed to Schrock, an angel investor who believes there’s a “huge gap” between early-stage seed investments and traditional venture capital.

This is the second time in less than 24 hours I’ve heard mention of the “financing gap” between traditional angels and traditional VC firms. What’s needed, I’ve heard argued, is what might be called the “Third Way” of startup financing, one that combines the smaller dollar amounts of angel investors with the support, rigor, and broad reach that traditional VCs provide.

Michael Rice reported from the recent NWEN Early Stage Investment Forum that “The funding gap is a painful reality here in the Northwest”, but in context it’s clear he’s talking about process and engagement issues, not dollar amounts.

What do you think?

Reading the Q1 Washington State Venture Capital Outlook posted over at the WTIA (formerly WSA) website, you wouldn’t know that we’re in troubled economic times. Or perhaps it would be more accurate to say that for high-tech, there IS no trouble. Forecasts are rosy (but not in a bubbly way) and this bodes well for early-stage companies across the NW.

The biggest impact of the broader economic situation is if you’re getting close to an IPO. There’s some pessimism there.

And in case you’re wondering why entrepreneurs keep getting funded for every new idea they have, read this:

Our respondents view the inability to find top executive talent as the greatest challenge facing their portfolio companies.

It’s a rare day when you read a venture capital outlook and don’t see some version of the above statement.

I ran across this great post on the Seattle Tech Startups e-mail list by Shan Sinha.

It’s not uncommon to go into VCs and pitch just on an idea.. but the more traction you have the better. The levels of traction I would think about are (in increasing order):

1. team: pedigree? top tier schools? previous successful startups? previous failed startups? significantly deep domain knowledge?
2. product: do you have a product built? is it really unique? Is it well differentiated? Do you have some unique technology being leveraged?
3. users: do you have users on your product yet?
4. revenue: do you have paying customers?

If you don’t have a great story for #1, then you should at least be at #2 to go and pitch to a VC. If you don’t have a great story for #1 and #2, you should be at #3. If you don’t have a great story for 1-3, you should be at #4.

If you have a good story for level 1, you can go in and pitch.. and go in with a good chance of getting funding.. but you’ll most likely be giving away a fair amount of equity for it.

Long story short… get as far down the traction ladder as you can before you pitch to VCs.

Great information Shan. Thank you!

No, the title is not a reference to the preponderance of men in the VC industry, but rather the predictable, metronomic quality to the pitches.  Of course, this isn’t a negative, but rather a necessary factor in making it easier for angels and VCs to evaluate investment opportunities.  Pitch standardization also adds a dash of structure and formality to what would otherwise be an uncomfortable luncheon, what with the tanned guys in the deck shoes and 2-lb. Swiss watches on one side of the table, and a ragged array of idealistic, naïve Comp Sci burnouts on the other side.

Alliance of Angels has their own take on making the sausage smell good enough to lure prospective investors in for a closer look.  Everyone interested in startups should read this, as it not only tells you what investors are looking for, but what YOU should be looking AT as you get your idea off the ground.  It might prevent you from saying something like “CEO?  I don’t need no stinking CEO.  We’ll crowdsource that function!”

Good, practical advice from a reputable organization, presented coherently and without any visible Ron Paul references.  Wait — this can’t be on the Internet!

Presented by Leo Dirac at the Ignite Seattle 4 event last September.

[youtube=http://www.youtube.com/watch?v=lWHsDBLY_Mg]

Note to Leo: write more! You have a neat blog, but it’s sparse.

From Rob Frankl:

When it comes to venture capital types, for example, two things can happen: they either want your project or they don’t. If they don’t want your project, they have no need to expose their massive wealth to your tiny liability claim. They’re simply not motivated to make trouble for themselves. If they do like your project, they’re going to keep it as secret as they can, because they’re going to put their money in it. Of course, I never want a VC to sign an NDD, because if you know anything at all about them, venture people all hang out at the same clubs, eating the same food and drinking the same drinks. If one of them happens to drop my project to another during a second martini and he likes it, is that a bad thing? I think not. Especially since almost every venture deal tends to get spread out among a bunch of venture firms, anyway.

Probably very true. But how old is that page? There are <font> tags and a bunch of &nbsp;’s for layout.  Personal gripe: information on the intarwebs that is not dated.