Wallen's

2007 Web start-up funding: Web VC ranking

In my post « Insights on Web funding from Crunchbase», I mentioned that I would run some numbers for year 2007. With the end of 2008 approaching and before being busy at Le Web ’08 conference of Loic LeMeur, here is the first post of a series of 3-4 on Web start-up funding in 2007 based on CrunchBase funding database. This post will focus on the “2007 Web VC ranking”.

I’ve changed a bit the scope compared to my previous post by including seed & angel rounds. There are of course a few minor caveats to this ranking. First, there maybe a few deals missing in CrunchBase. However, the funding database for 2007 includes ~670 investments in ~630 Web start-ups for a total value of $~6.3 bn (among which $~5.3 in the US). Actually, the total value for the US is similar to the Internet figures of the Money Tree Report from PwC and NVCA. In other words, year 2007 is very well covered in CrunchBase. Second, some deals recorded as 2007 transactions may have occurred end-2006. But this is compensated by the similar effect for end-2007 investments. In any case, these two points should not affect materially the relative position of the various VCs which is the interesting point of the ranking. The latter reflects VC funds involvement in Web start-up funding (flow of investments, not current portfolio), i.e., from a Web entrepreneur perspective "which organization can help me fund my start-up?". It is not a measure of quality or track record. 

Enough talking, here is the 2007 top 30 Web VC ranking: the top 5 places are trusted by Sequoia, Accel, DFJ and First Round Capital with Y Combinator complementing this group (tough not a VC but an incubator). Thirteen funds have invested in 10 or more Web start-ups in 2007 (full ranking and detailed investments by investor are in Excel here: Download 2007 Web VC ranking).

 

Next week, I'll  continue on this series on 2007 Web start-up funding.

PS: thanks again to Nicolas Cynober - Web semantic expert and R&D engineer at pearltrees - for his help to extract CrunchBase funding database.

Distribution power vs. network effects

Startable builds today on a WSJ article on Google to discuss about investors and technology entrepreneurs' fear of Google's distribution power:

"The thought among VCs was that, with millions and millions of people viewing the Google search page each day, Google could easily launch and test all sorts of crazy new services, like Google Checkout or Google Finance or Google Base or Gmail. Some of these have really taken off, and with the early(ish) success of Gmail VCs were quaking in our collective boots that Google could easily leverage its distribution power into huge market share for any new product its engineers dreamed of creating.

But maybe Google’s distribtion heft isn’t enough?”

This fear reminds me of our seed fundraising earlier this year when most prospective investors came up with very similar questions.

My answer was that actually Google was the least of my fear: it has failed quite a number of times in the past years trying to compete with start-ups. To name a few, Google's Orkut did not hurt FB nor MySpace. It was successful only in Brazil and India where they were not present yet. Google launched its own YouTube equivalent service... before buying YouTube after the failure of its service. Lively is another recent example, etc. However, iGoogle did compete effectively against Netvibes. The latter had not yet really penetrated the US market and this service has no network effects. Actually, if you look at the list of sucessful services in Startable's post, there is no services with networks effects (except maybe Google Base).

In other words, network effects are an extremely effective barrier to entry against the distribution power of big corporations (... if the latter is slow to come in). Networks effects are not just a Web phenomenon. It's been used in numerous sectors. That's why Google has missed most of the user-generated-content trend.I wonder however why they were systematically so late? Maybe it comes from a "company DNA" skewed towards "the belief in the power of algorithms" (vs. human power)?

Incomplete decentralization of the Web

My friend and colleague, stetoscope, wrote a short and interesting post few days ago. His point is that, while content creation has been decentralized / democratized in the past few years, access to content is still centralized (via search engines, portals or voting systems). These access points select the subset of websites that we will visit among the mass of existing content. It's not necessarly an issue, except that the underlying "majority" and "one-size-fits-all" approach of these access points makes it very difficult for a specific individual to find content customized to his personal interests, tastes and opinions. Stetoscope's conclusion: there is still room for improvement in the decentralization of the Web.