Monday, January 26, 2009

SIIA Previews 2009: Making Growth Work in a Tough Economy

The 2009 edition of the SIIA Previews is playing to a gloomy investment environment this year, as highlighted in data presented in the beginning of the afternoon's session by hosts PriceWaterhouseCoopers. Kate Bluvol, Audit Partner for PWC, noted that 4Q08 saw a 26 percent drop in venture capital deals over the same '07 period, though apparently total '08 investment was up a tad. IPOs were near-nil for 08 at 6 for the year, compared to more than 80 in '07. A hopeful sign is that investment in first-round companies was actually up as a portion of overall investment for the year, at 24 percent as compared to less than 17 percent in '07. So, hopefully, the growth companies for the recovery period over the horizon are still in place. Nevertheless, it's clear that it's going to be tough sledding for most entrepreneurs, especially those ventures which cannot generate clear cash flow at a disciplined rate. Another interesting note from PWC stats is that west coast investments are only about a third of last year's gravy train: the horns have been pulled in for now on pie-in-the-sky Valley plays, but there are a broad array of other investment sectors such as energy where money is still flowing. A person in the audience claimed angel money is down 50 to 70 percent, and the panelists seemed to concur.

This is all good news for companies like Dow Jones, which benefited from the acquisition of content harvesting service Generate last year, typical of the deals that major publishers are going to be executing during this value-picking season. Types of revenues streams are also a factor: Panelists Tom Aley, SVP and Managing Director, Dow Jones BRI and Ed Reitler, Parter, Reitler Brown & Rosenblatt LLC, emphasize that in a down market for ads revenues from viral marketing schemes and other social media-inspired plays are important streams to bolster cyclical factors. Whatever the play, though, the funds and rounds are smaller and fewer in between to get these returns flowing. "There's a lot of money right now," noted Joel Dreyfuss, and Tom Aley noted that there are funds out there still generating funds for new ideas, are eager to listen to good pitches. He noted B2B subscription services as a key point of interest.

Will U.S corporate compliance regulations such as Sarbanes-Oxley be loosened to lower the costs of corporate reporting for early-stage companies? It's speculative at this point, but with the need to encourage new energy technologies it's possible that the mood in Washington will balance the need for investment regulation with investment growth. Here's hoping that young companies get the funding and the media attention that they need to keep the transformation of the content industry continuing. As noted by Larry Schwartz, President of Newstex and Chair of the Previews event, several of the companies highlighted in earlier Previews sessions have gone on to very positive exits and/or successful ongoing business models. Following are relatively live impressions of the presentations by SIIA Previews companies.

RSuite CMS - Barry Bealer, Really Strategies, Inc.

CMS for publishers, run the whole show or just certain functions, make more efficient production environments, easier to repackage content and create new content products. Highly scalable, open and extensible. Easily integrated with other packages, ROI in months, not years. used RSuite CMS, applied over a hundred of metadata fields to licensed content, increased production throughput 100 percent. BloodHorse mag and Web site, took in raw data and transformed it into useful pubications rapidly. Sage Publications takes offshored content, packages it through RSuite CMS and fans it out to specific publications and parters automatically. Really Strategies started as a consultant, then launched RSuite, now does both. Major publisher will be able to decommission six legacy systems with RSuite.
COMMENTS: I am a partisan of sorts with Barry, I do believe that they've done an excellent job of creating a production environment that makes it easy for publishers to either fully automate content formatting and generation and/or to get editorial teams to intervene and add value easily to well-structured content. Metadata capabilities are first rate.

Arity Corporation - Peter Gabel, President

People drowning in information, Arity organizes research. EXPRESSway helps researchers to focus on research content. Natural language processing, example, hearing loss, broad and narrow categorization and information on treatments, plus information about why a choice makes it through the sieve. Content from proprietary and subscription sources, helps people to gather and share information, organize information into notecards, can do on-the-fly mashups and analysis. Plays to casual researchers as well as research professionals. Tried at Kodak, WK, Pfizer, Elsevier, Turner, Monster, FedEx.
COMMENTS: I am fairly skeptical of these kinds of tools, not because Arity is a bad implementation but more because it's a crowded space at this time and there are only so many ways to slice taxonomies and ontologies. But the business model is good, working both directly and through enterprise publishing partnerships to solve business problems in a diverse array of sectors. Still in beta with publishing partners. Like RSuite this is solutions software that's getting productized. Not as sexy as Generate on the surface, but like Generate it's pretty well-targeted at solving specific problems in enterprise information. My guess: an acquisition target at a low multiple if the betas pan out. Not the strongest presentation of a pretty strong product.

InsideView - Umberto Milletti, CEO and Cofounder

Aggregates social media information and traditional business information and integrates it into key salesforce automation platforms with key analytics that can drive productivity. Strong leadership and investment team, customers are early adopters of productivity tools, 200+ customers, 6,000 end users, 96% renewal rate, lots of young companies but quite a few established companies. Smart Records from Jigsaw, Reuters, ZoomInfo and Hoovers blended into consolidated records. Injected into CRM applications for leads, opportunities, most recent and relevant information is at their fingertips. Well-integrated into workflows, not just mashups. Every person can see a different view of information, relevant to their work role and focus. Revenues from freemium model, subet of info on free side for CRM integration, pro model pays per month/seat. Integrates Google Apps, but unlike a Hoovers, this is more complete, fresher presentation. Can't mine cust DB, integrated in CRM. Social media aggregation key, calls it "socialprise," brings people up to date with key social networks without wasting time on social media products.
COMMENTS: This is a great play, neutral business information aggregation on key SaaS/enterprise/cloud platforms that includes analysis of both traditional and social media sources. This is good business information middleware, if you will, with a lot of high short-term integration value and an apparently good architecture for expansion. Strong presentation.

MixedInk - Vanessa Scanfeld, Founder and co-CEO

Collaborative writing tool developed by Cornell students/grads. Hard to get a single voice from individuals and communities. Community blends and rates content as it's contributed, top-rated version can be published by community. Example, past inaugural addresses from U.S. Presidents mixed. Can browse, rate and write. Currently top-rated version available. Rating on the criteria of "represents my view." If you like an addition in a wiki-like format can be added to another person's draft. List of versions is published, can be rated against others. Freemium and white-label custom integration model. Slate was an early customer.
COMMENTS: Interesting tool, I like the fact that it's easy to understand who contributed what to a piece via the pasting function. Needs help on business side to develop some core content, as Wikipedia was a lever for Wikimedia to get its software entrenched. Early stages, hopefully develops, use in government and politics could be a strong plus.

Prolifiq - Jeff Gaus

Helps customers sell image/formatted content more effectively, Getty Archives, Corbis, photos able to be released by sales teams easily. Cisco gets collateral out more efficiently. Able to activiate distribution via mobile devices such as Blackberries. Reuters using Prolifiq for their "Bluehouse" initiative. Profitable, cash-flow positive for two years. Helps stage content/collateral for helping sales to close. SaaS subscription model, revs/seat plus professional services.
COMMENTS: Question was "product or feature?" Good question, but I agree that it's a product. It helps people generate revenue, apparently with some success. - Susan Solovic, CEO and co-Founder
"Just like turning on your television set." Top stories of the day or goal-directed stories. Small business resource - more than video, largest events calendar, "vast" video catalog, thousands of evergreen videos, podcasts, Internet radio, mobile content. Trusted voices, "don't have to weed through the dancing cat videos." 13,000 uniques at native sites, partnership with Hoover's, NFIB, Manta, Moli, Dell, Microsoft Office Live small business, others. White labels such as Tech Tactics, which Dell sponsors, they maintain editorial. Big advertisers. Profitable since '06, 15 mil ad views per month, 450K-850K unique visitors. Hoping to build via SEO and SEM strategy. Numbers starting to climb from it. Videos both from editorial staff and user-gen from SMBs, same search tools but non-editorial labeled to disavow editorial responsibility.
COMMENTS: Solid media play, good barriers to entry through editorial inventory, good potential but it will be a foot race in this economy to grow quickly enough. Seeking expansion capital.

Adgregate Markets - Henry Wong, CEO

Some creative and ad banner serving but the key ingredient is that it provides ecommerce experience in ad space. Verisign plus own encryption algorithm. 3X increase in actual product purchases, much higher CPMs, depending on contextual relevance. Advertisers can put it out many different ad networks or their own ad network. Marketplace of 130 bil for online ads, lots of upside. Customer Service - they handle first-line issues. Payouts are similar to other affliate ad network partners.
COMMENTS: Hot idea - transaction in context, I've been talking about this for a long time. Early days, but pretty good barriers to entry with security solution, good workhorse ecommerce solution that plays well with many.

Associated Content - Luke Beatty, CEO

Open content network, solves problem of consumers relying on search to find information. 200K content contributors, connecting their work with portal audience, pay cash for quality content. Help brand publishers, share ad revenue with content generators. Buyer Zone, Zappos gets white label content such as reviews that helps them to build out their portals with unique
content. 10 percent of content is video, more partners using it.
COMMENTS: Probably economically successful, low-cost content generation model, a step up from Helium or Pay-Per-Click, partnering strategy is smart, kind of a generic content engine. I am not personally fond of this kind of content, but it's evolving into a smart play.

Management CV, Inc. - Renny Ponvert, Founder and CEO

Statistical evaluation of company management teams with textual commentary. Predictive nature seems to be backed up with statistics, claims consistent picks of winning managment teams in Russell 3000, less utilities and finance. Rule-based text format similar to Value Line in concept, statistical regressions on past history, e.g., ex-GE execs haven't performed well statistically. Trying to measure management skill objectively. Focused on direct sales to money managers, profiles updated as new events such as new CEO trigger evaluation. Annually compensation plans are released, helps trigger textual commentary, largely annual-plus cycle.
COMMENTS: Really creative approach, this looks to be very promising, especially in a market that is looking for more meaningful predictive performance benchmarks.

Cell Journalist - Parker Polidor, Founder

Local media is the core value of news, turnkey platform to integrate user-generated news content into media sites, integrated into Web site, instant posting of comment is key to gaining audience share - has to be timely. Integrated revenue generation tools. CNN, other bigs got about 750 user-gen pieces online during Hurricane Ike, local outlets using Cell Journalist far more. Setup/maintenance model plus available ad revenues. Sell in and through media model. Working with Scrpps papers, other major deals brewing. iPhone app, allows easily branded window that captures tagging, geo data and descriptions right off of the mobile device. Highly scalable.
COMMENTS: Solid, solid, solid and very well placed with the end of community publishing that's likely to keep growing in a challenging economy. Cross-platform, good mix of revenue streams.

Good class of companies this year, pretty solid across the board. Great to see good things happening in the face of a challenging economy.

Keynote - Roger Ehrenberg, Managing Partner, IA Capital Partners, LLC

Monitor 110 - why did we fail? What undoes a startup?

No buck stops here leader, too internally focused, too much PR too early, too much money, lack of a real single vision - had a face that looked unified to others, but the dissent was there. "Two-headed monster is going to be less effective at being quick." Had top investors, but nobody challenged their structure. Team wasn't interacting with customers, wasn't in the company's DNA once the companies arrived. Over-engineered, proprietary and costly architecture. Unrealistic expectations for technology engendered a hiding culture instead of getting more exposure and feedback from potential clients. Too much money meant that you felt you had to do something big, but few revenues for four years. 2005 version had lots of problems, but if it had been exposed to customers it would have gotten good feedback. "Not a scrappy revenue-generating outlook."

"How does one fail successfully?" Humility - need to acknowledge and learn from failure, insight and persistence. And you have to work all the time. "Failure sucks. Being a first-time entrepreneur is very hard." Timing of a startup may be as important as the quality of the idea, says Harvard Business School. Persistence is one of the most important attributes for entrepreneurs, as is focusing on execution and not just ideas.

Lessons learned applied to Stocktwits. Single leader - Soren Macbeth, Separation between development and product staff, built the product for 50K, PR only after the product was functional in the market, then booted up 850K from users and strategic investors. Focused on building core IP, lots of open source for infrastructure, put effort in their own IP. Ruthless focus on customers, first premium products end Q1. Stocktwits stream is so clean that Bloomberg carries it in alternative news stream. Focused funding on people building models, up and running at low costs. Get revenues as soon as possible to build discipline into business DNA. Have to get to breakeven ASAP. "Failure plus learning plus persistence equals success." Great, honest presentation.
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