The latest rumor in Silicon Valley:

It’s no secret in Silicon Valley dealmaking circles that Yahoo has been looking at what insiders have called a “transformative” acquisition to jumpstart the company.

And while many think that has to mean grabbing one of the big content companies–such as AOL or Demand Media–right in Yahoo’s wheelhouse, sources said it is actually training its attention on, drum roll, commerce.

That would be local commerce, most specifically, companies such the hot start-up Groupon, which dominates social couponing.

Sources said Yahoo (YHOO) has been eyeing it for possible acquisition, which would put it smack dab in the hot space around local purchasing and consumer information.

via Yahoo’s M&A Strategy–Maybe Local Commerce Rather Than Content (Hello, Groupon!) | Kara Swisher | BoomTown | AllThingsD.

What it means: not surprising that people are sniffing around Groupon. Their success has been phenomenal.  Yahoo! has always been a fan of “local”, so no surprise there but I’m not sure Yahoo! would make a good deal (no pun intended!) buying Groupon though. Their valuation is through the roof and they’ve already started to expand in Europe (and I don’t think Yahoo! is trying to build up that continent). I suspect Yahoo! must also be looking at LivingSocial, the #2 player in the space, and will probably end up buying them.

One of the first things you learn when you launch your own startup is to actively monitor opportunities in the market and move quickly to leverage them. In my case, it happened three times in the last three years.

The first strategic move happened back in the fall of 2006 when Sylvain Carle, Harry Wakefield and I founded Praized Media to help local media companies leverage the rising force of social media and online word-of-mouth. I also started blogging about what I call “local 2.0,” the intersection of local search and social media. At the time, most people believed that this convergence would not happen. Three years later, it’s one of the hottest sectors.

We made the second key move in fall 2008. Having launched our first social local tools (for WordPress, Movable Type, Facebook and our hub site) a couple of months before, we were approached by a few major media players who signaled to us they would be interested in using the technology we had built within their own online platform. This gave us the confidence to develop white-label enterprise versions of our social local media software, which has been in the market since spring 2009. Building on the popularity of our initial module, we developed many more enterprise modules described here.

The third strategic move is happening now. Last fall (what is it with fall???), we were approached by two US investment banks who aspired to represent us if we ever wanted to find a strategic partner for Praized Media. A few companies also hinted to us that they might be interested in investing in or acquiring Praized Media. Based on that enthusiasm, Sylvain and I (along with our board) discussed the pros and cons of going to the altar with a strategic partner vs. continuing alone.

The market is super-hot for technologies like ours. In the last three months, there has been a flurry of acquisitions and funding events in the “social local” space (we’ve created a document listing them if you’re interested). We could go on the road and raise new VC money to fuel our growth, but anyone that has raised those kinds of funds before knows that this is a brutal process, even when your market is hot. It takes a lot of time and energy, and for small companies, the process forces you to take your eyes off the product/company development roadmap. At the core, Sylvain and I are product/technology guys and that’s what we want to do. In the last two years, we’ve built world-class real-time social local search technologies. We’ve assembled a five-star (pun intended) social local technology development team. We’re notable thought-leaders in our space.

The future of local media will be centered on Aggregation / Discovery / Social / Search and our technology stack enables that. We believe what we’ve built (team and technology) represents the cornerstone of the next-generation local media company (traditional or pure play), and we want to focus on building that vision with a larger organization.

For all those reasons, we have decided to hire [praized subtype="small" pid="858569eeccb433824aca7193236f55ce" type="badge" dynamic="true"], an investment banking firm in Los Angeles that specializes in digital media, to represent us in our search for a strategic partner. We’re obviously supported a 100% in this decision by our board and the whole team is excited by this new move. For our current customers, collaborators and service providers, it is business as usual as this does not impact our day-to-day operations (actually, it frees up more time!). Given current market conditions, we are extremely confident we will find the right strategic partner.

If you’re interested in discussing more the opportunity, you can contact Siemer & Associates at (310) 496-4510 or info@siemer.com.

LeWeb: The Money Roundtable

December 10, 2009

Interesting VC/Angel roundtable this morning at LeWeb moderated by Dave McClure (who defined himself as Startup Investor & TroubleMaker!). Here’s what participants had to say about the VC/angel market in 2009 and what we can look for in the future.

Money Panel LeWeb Paris December 2009

Christopher Sacca, Founder, Lowercase Capital LLC

  • His firm does early stage investment ($50K to 250K) and very large investment ($500M+)
  • It is now cheap to start a company. Ten years ago, it would cost you $1M before your first line of code. Rent and Engineers are now the two biggest expense lines.
  • Sacca revealed that they did 3 deals yesterday.
  • The changes he saw recently: valuations are up again driven by larger funds probably because it was a year of low activity. Funds need to get the money out and VCs definitely have money.

Dan’l Lewin, Corporate Vice President, Strategic and Emerging Business Development, Microsoft Corporation

  • Microsoft buys 10-20 small companies per year, about half of those are VC-backed.
  • Those acquisitions are usually companies that are 2 to 5 year-old.
  • 2009 was a good year relative for young companies.
  • Microsoft buys many companies abroad, not just in the US.
  • When asked if he thinks acquirers are competing with VCs, Lewin said he doesn’t think so given the scale of their business. They look at businesses that are close to the core, extending the business.

Dave McClure Chris Sacca Danl Lewin LeWeb Paris December 2009

Dave McClure, Chris Sacca, Dan’l Lewin

David Hornik Jeremy Wenokur Eric Archambeau LeWeb Paris December 2009

David Hornik, Jeremy Wenokur, Eric Archambeau

David Hornik, August Capital

  • 2009 was a great year for August Capital as they closed a new $650M fund.
  • Hornik did 4 deals in the last 12 months (6 in the last 15 months).
  • Size of those deals: between $1M to $35M. Usually, they are Series A rounds (approximately $4M)
  • What’s a successful investment for Hornik: when he can say “that was great!”.
  • In 2010, a lot of people are hoping is the year that VC are able to raise money. In the case of Gowalla, competition for the deal between funds drove the price up.
  • Hornik mentioned that it’s cheap to start companies these days but, as it starts scaling, it’s not as cheap. It’s cheaper the ten years ago but it’s not cheap. The things that succeed require capital.

Jeremy Wenokur, Angel investor & Advisor to Apax Partner

  • Wenokur says he took 9 months off and just restarted investing.
  • The size of his deals: $25-50k investments.
  • He’s seen the shift of money to smaller funds and that’s why you see a lot of deals being chased.
  • For him, a good exit is $20M-30M exit and it happens one out of five times.

Eric Archambeau, General Partner, Wellington Partners

  • They search Europe for investments
  • They have 800M euros in management
  • They do 50K to 25M euros investments
  • in Web investment, they look for evidence of traction
  • In reference to smaller exits in 2009, Archambeau says that maybe VCs were less patient this year and maybe exited too early.

I had the opportunity to listen to Niklas Zennstrom this afternoon. He’s currently a Partner at Atomico Ventures (his VC fund) but he’s well-known as the founder of Kazaa, Skype and Joost. I wrote about Joost and Zennstrom recently. He talked about entrepreneurship, his own personal failures and successes and the European scene. As an entrepreneur myself, it was a very inspiring speech.

Niklas Zennstrom LeWeb Paris December 2009

A few excerpts:

  • Entrepreneurship is a lifestyle and takes up all your life. It requires lots of sweat and long hours of work.
  • You need an unshakeable belief in your startup, to be passionate about it, even when people don’t believe it.
  • For Kazaa, they were too early, actually several years early. This was a missed opportunity in terms of business development as their proposal to music companies fell on deaf ears.
  • If something is not working, take a deep breath and start again. In Zennstrom’s case, it became Skype. They went after a large market (phone companies) with fat margins. Skype got a lot of traction really quickly but it was very difficult to raise money. No one wanted to touch the company. VCs thought it was too risky.
  • He believes Loic Le Meur is probably the last European entrepreneur to move to Silicon Valley (Loic moved to San Francisco a few years ago to launch Seesmic, his current startup)
  • Entrepreneurs need to think of Europe as a market (critical mass vs. the US market)
  • Europe has a tendency to stigmatize failure but you cannot have big returns if you don’t have big risks
  • Joost was a misjudged opportunity. They could not strike the right partnerships.
  • Whatever you do, you never know the results in advance.
  • How’s the scene now? We’ve seen more and more companies from Europe being successful with a culture of international startup company. Companies think globally from the get go.
  • We now have European role models: Zennstrom himself, Loic Le Meur, Martin Varsavsky, etc.
  • Do we need an European Silicon Valley (i.e. a physical place)? No, we can meet online and then network at events.
  • Capital is no longer as important for entrepreneurs as a few years ago. Building a startup is more cost efficient and companies are able to reinvent themselves quicker with agile entrepreneurs.
  • It’s exciting to be an entrepreneur in Europe. In recession, you build companies and in peak market, you exit. The next few years will be fantastic. Disfunctional markets means entrepreneurs will enter the market.
  • Atomico Ventures wants to bet on European entrepreneurs that want to build tomorrow’s global companies. It’s all about the people (passionate) and it’s all about the size of the market.

More on Techcrunch.

OneRiot, a real-time search engine, announced a $7M financing round on Thursday. Launched in November 2008, OneRiot is trying to organize the real-time Web around shared links in social media. According to Techcrunch, the money “will be used to improve three key area of the service: Speed, scale and relevance”. Appian Ventures, Commonwealth Capital Ventures, and Spark Capital put the money in.

What it means: you know a space is heating up when VC money starts coming in. Yet another sign that this is a fundamental shift in the way people will discover content in the near-future.

[praized subtype="small" pid="58d245fd7e8f20800dee0ecd3af21f08" type="badge" dynamic="true"], the second-largest directory publisher in Canada, announced Sunday night the acquisition of GigPark, a self-funded social recommendation site from Toronto, Canada. For Canpages, it’s the second local/social acquisition in two months. The first was Ziplocal in June. This acquisition is the latest in a series of “local media” technology/people acquisitions in the last few months. I noted five other ones in a blog post I wrote two weeks ago.

Interestingly enough, this is the kind of white-label enterprise technology Praized Media is proposing to directory publishers and other local media publishers worldwide. Yellow Pages Group, Canada’s largest directory publisher, is using our Answers module at answers.yellowpages.ca. We’re also currently deploying our real-time activity stream and real-time search technology within a major local portal and our technology stack has generated interest from about a dozen players in Canada, in the US and in Europe. Because of that, as co-founder of Praized Media, I was asked by a few people yesterday what I thought of this acquisition.

1) I am very happy for Pema Hegan and Noah Godfrey for this acquisition. Good work guys! I know how much work goes into building a startup. You’ll see, it’s actually fun working in the directory industry!

2) As a crystal-ball gazer, I am delighted to see directory companies fully embracing social media, even though it’s not our technology they end up using. As I’ve been writing about in the last three years, social media is key to the future of traditional local media firms. The “social” trend in the directory space is not a fad.

3) Reviews and recommendations are just the tip of the iceberg in social/local. The next evolution is “real-time”. Google is thinking about it, Twitter announced last week that they would support geo-location in their API which will allow developers to add latitude and longitude to any tweet and Facebook is bound to announce something very soon.

4) The acquisition of technology assets & people by local media publishers validate our core business model of working as technology providers to local media publishers. There is a clear need out there for our product offer and the Praized team is a world-class product & development team in the local/social technology space.

So, what to expect in the next 6 to 12 months?

1) Definitely expect more acquisitions and possibly some mergers. As Kelsey Group analyst Matt Booth said last week during a Kelsey webinar, local media publishers should try to put their hands on interesting companies and assets this year before the economy picks up again next year. The idea is to be ready with new, groundbreaking revenue-generating opportunities when good times come rolling again.

2) Also expect more rapid innovation in the space. Robert Scoble is quickly cluing in to the business potential of local recommendations in a post yesterday where he compared Facebook, Google, Twitter and Yelp. He says:

How will Facebook collect the cash? Well, go to Google and let’s do that sushi search for Boulder, Colorado again. Did you see how that list works? Facebook needs that list. Twitter isn’t even close. But what’s missing? PEOPLE! Imagine if this list, when it’s brought to you by Facebook, shows that #1 has been liked by 14 of your friends? Businesses get that for free. But what don’t they get for free? Yelp’s “offers.” Businesses PAY to “offer” things to customers to try to move up the list. So, if you’re the #3 business on the list, you might say “bring your iPhone in and you’ll get free beer.” Doing that will cost you money, both in the free beer and the advertising you’ll pay Facebook or Google or Yelp to try to move up the list. Google has the list. It doesn’t have the humans or the offers. Yelp has the offers but doesn’t have hundreds of millions of people. Facebook has hundreds of millions of people and the “like” system, but not the offers. So, who will get there first? Now you understand the battlefield. Who will win the war?

But he forgets that Yelp’s “offers” don’t scale. Yelp doesn’t have the “offers”. They don’t have a large enough sales force to make it a billion dollar business. It’s Yellow Pages, newspapers, coupon and other local media publishers that own the sales force. But then, like Google, local media publishers don’t have the social elements and interactions. It will be a natural one-two punch for any large company that assembles merchants (i.e. advertising) and consumers meshed in social interaction. I’m willing to bet this will come from directory companies if they move fast enough but I venture the window of opportunity is approximately 12 months before Facebook, Twitter or even Google crack the social local nut.

Update: Greg Sterling analyzes the transaction.

[praized subtype="small" pid="58d245fd7e8f20800dee0ecd3af21f08" type="badge" dynamic="true"], the second-largest directory publisher in Canada, announced Sunday night the acquisition of GigPark, a self-funded social recommendation site from Toronto, Canada. For Canpages, it’s the second local/social acquisition in two months. The first was Ziplocal in June. This acquisition is the latest in a series of “local media” technology/people acquisitions in the last few months. I noted five other ones in a blog post I wrote two weeks ago.

Interestingly enough, this is the kind of white-label enterprise technology Praized Media is proposing to directory publishers and other local media publishers worldwide. Yellow Pages Group, Canada’s largest directory publisher, is using our Answers module at answers.yellowpages.ca. We’re also currently deploying our real-time activity stream and real-time search technology within a major local portal and our technology stack has generated interest from about a dozen players in Canada, in the US and in Europe. Because of that, as co-founder of Praized Media, I was asked by a few people yesterday what I thought of this acquisition.

1) I am very happy for Pema Hegan and Noah Godfrey for this acquisition. Good work guys! I know how much work goes into building a startup. You’ll see, it’s actually fun working in the directory industry!

2) As a crystal-ball gazer, I am delighted to see directory companies fully embracing social media, even though it’s not our technology they end up using. As I’ve been writing about in the last three years, social media is key to the future of traditional local media firms. The “social” trend in the directory space is not a fad.

3) Reviews and recommendations are just the tip of the iceberg in social/local. The next evolution is “real-time”. Google is thinking about it, Twitter announced last week that they would support geo-location in their API which will allow developers to add latitude and longitude to any tweet and Facebook is bound to announce something very soon.

4) The acquisition of technology assets & people by local media publishers validate our core business model of working as technology providers to local media publishers. There is a clear need out there for our product offer and the Praized team is a world-class product & development team in the local/social technology space.

So, what to expect in the next 6 to 12 months?

1) Definitely expect more acquisitions and possibly some mergers. As Kelsey Group analyst Matt Booth said last week during a Kelsey webinar, local media publishers should try to put their hands on interesting companies and assets this year before the economy picks up again next year. The idea is to be ready with new, groundbreaking revenue-generating opportunities when good times come rolling again.

2) Also expect more rapid innovation in the space. Robert Scoble is quickly cluing in to the business potential of local recommendations in a post yesterday where he compared Facebook, Google, Twitter and Yelp. He says:

How will Facebook collect the cash? Well, go to Google and let’s do that sushi search for Boulder, Colorado again. Did you see how that list works? Facebook needs that list. Twitter isn’t even close. But what’s missing? PEOPLE! Imagine if this list, when it’s brought to you by Facebook, shows that #1 has been liked by 14 of your friends? Businesses get that for free. But what don’t they get for free? Yelp’s “offers.” Businesses PAY to “offer” things to customers to try to move up the list. So, if you’re the #3 business on the list, you might say “bring your iPhone in and you’ll get free beer.” Doing that will cost you money, both in the free beer and the advertising you’ll pay Facebook or Google or Yelp to try to move up the list. Google has the list. It doesn’t have the humans or the offers. Yelp has the offers but doesn’t have hundreds of millions of people. Facebook has hundreds of millions of people and the “like” system, but not the offers. So, who will get there first? Now you understand the battlefield. Who will win the war?

But he forgets that Yelp’s “offers” don’t scale. Yelp doesn’t have the “offers”. They don’t have a large enough sales force to make it a billion dollar business. It’s Yellow Pages, newspapers, coupon and other local media publishers that own the sales force. But then, like Google, local media publishers don’t have the social elements and interactions. It will be a natural one-two punch for any large company that assembles merchants (i.e. advertising) and consumers meshed in social interaction. I’m willing to bet this will come from directory companies if they move fast enough but I venture the window of opportunity is approximately 12 months before Facebook, Twitter or even Google crack the social local nut.

Update: Greg Sterling analyzes the transaction.

Facebook, the leading global social network, dropped a bomb on the sociosphere on Monday by announcing they had bought the very innovative social streaming service called Friendfeed. I gave an interview to Marketing Magazine (Canada’s Advertising Age) explaining the rationale behind the acquisition. Here are the highlights:

  • First and foremost, Facebook bought a great engineering team and excellent technology assets. The 12 Friendfeed employees and co-founders were innovating at a breakneck speed. Two of the co-founders, Bret Taylor and Paul Buchheit, used to work at Google where they respectively created Google Maps and Gmail.
  • It’s all about the search war. Google vs. Facebook. Algorithmic search vs. real-time search. Machines vs. humans. Facebook had pretty much been beaten by Twitter on the real-time activity and real-time search front. Rumor has it that when Twitter turned down a rich offer from Facebook to buy them, Facebook decided to take a better look at Friendfeed.
  • The transaction has been estimated at close to $50 million by the Wall Street Journal. According to the newspaper, “The company paid roughly $15 million in cash, with the rest in Facebook stock that vests over several years and would be worth roughly $32.5 million based on the $6.5 billion common valuation an investor recently placed on the company.”
  • Such an exit for Friendfeed is very good given that their traffic had plateau-ed at 1 million users per month, they didn’t have any revenues and they never managed to become popular outside of the Silicon Valley digerati. They created amazing and innovative technology though.
  • The founders did not sell because they wanted to cash out. They already did that with their Google options (Buchheit was employee #23 at the Mountain View search engine). They must have felt integrating Facebook was the right move at the right time.
  • The Friendfeed team will pretty much become Facebook’s R&D department.

What it means: Smart move by Facebook. Very good move for Friendfeed. Working inside Facebook will give the Friendfeed team more resources to execute on their innovative ideas. It gives Facebook great technology, amazing people and faster execution.

I’ve seen similar moves happen in the Local Media industry in the last few months. For example,

  • Truvo, a directory publisher in 6 European countries, acquired yelloyello, a startup from the Netherlands, in December 2008. Truvo transformed yelloyello into Truvo Labs to leverage social media technologies within the Truvo network.
  • AOL, who recently restructured to put “local” as one of their corporate strategic pillars, bought Patch, a US citizen journalism startup, and Going.com, a US local event portal in June 2009.
  • Herold, the Austrian Yellow Pages owned by European Directories, made a strategic investment in Tupalo, a social Yellow Pages site from Austria, in June 2009.
  • Canpages, a Canadian directory publisher, acquired ZipLocal, a social Yellow Pages destination site in June 2009.

Back in December, Valleywag and Silicon Valley Insider tried to estimate the current valuation of Facebook by calculating the price at which employee shares are transacting on closed markets.  Valleywag wondered if Facebook was only worth $1.3B while Insider said it might be worth around $2B, thereby facing the prospect of a down round in their next financing round. As we all remember, Microsoft had invested a $240M in Facebook for a 1.6% stake in the company in October 2007, valuing the company at $15B.

I don’t buy it.  Not Valleywag or Insider’s calculations of Facebook’s current valuation. I don’t buy the fact that Microsoft thought Facebook was once worth $15B (even though their press release says so).

Let’s review what I think happened. In October 2007, Microsoft announced that they had taken a 1.6% stake in the company. The Wall Street Journal wrote at the time: “Facebook sells ads on its own and also struck a deal last year that allows Microsoft to broker display ads on Facebook’s U.S. site until 2011. (…) As part of yesterday’s agreement, which lasts through 2011, Microsoft will sell advertisements on international versions of the Facebook service”. The press release adds “Microsoft will be the exclusive third-party advertising platform partner for Facebook” Interesting.  An exclusive search/contextual/banner ad deal is part of the agreement.

Go back one more year, in 2006.  Fox Interactive Media announced in August 2006 that they had “entered into a nearly $1 billion, 3+ year deal with Google to exclusively power search across most Fox online sites, including Myspace.” That deal had minimum revenue guarantees for Fox. If I remember correctly, Microsoft had bid for that business and lost it.

Go back further, in December 2005. Google and AOL announced the expansion of their strategic partnership through a $1B investment from Google in AOL (for a 5% stake).  Microsoft had previously lost that one as well.

With a fledgling search advertising business and a recently acquired ad network/ad technology (through the purchase of aQuantive in May 2007), Microsoft needed strategically to have at least one sexy partner. When Facebook exploded into the scene, they had found the deal they needed to absolutely make. I remain convinced today that the partnership business case was mostly built on the ad deal, which allowed Microsoft to claim Facebook as a partner, offer more inventory in their ad network and keep Google at bay. The small investment made sure the Facebook’s exec team remained aligned with that goal. Facebook must have made the request to include the valuation in the press release and Microsoft obliged. In a sense, this really worked for Facebook given that the Microsoft deal might have helped them strike two subsequent consecutive funding deals (for a total of $100M) with Li Ka-shing in November 2007 and March 2008.

In conclusion, Facebook raised (hopefully) enough money ($340M!) for a good runway and Microsoft got the strategic partner they needed while shutting off Google. But I don’t think Microsoft ever really thought Facebook was worth $15B.

Why did Cox Buy Adify?

April 30, 2008

From the press release:

Cox Enterprises, Inc. today announced that its subsidiary Cox TMI, Inc. will acquire Adify Corporation. Adify will operate as a stand-alone company and will continue to be led by Russ Fradin, CEO and co-founder of Adify. (…) Adify is the premier technology and media company focused on vertical online advertising. The company’s comprehensive technology and services allow major media companies, venture-backed businesses and entrepreneurs to build and operate targeted ad networks that support their advertisers’ goals. Vertical advertising networks offer marketers the reach, targeting and quality that brand advertisers increasingly seek in the online advertising space. More than 100 premium ad networks currently operate on Adify’s technology platform.

What it means: A bit late blogging about this news, but wanted to come back to it as it validates two of my key predictions for 2007 and 2008. I said in December 2006 that 2007 would be see more site “verticalization”. I also wrote in December 2007 that 2008 would be the “year of ad networks”. Adify sits at the confluence of these two major trends. They’ve seen amazing traction in the marketplace. Why would Cox buy them? I see two reasons: i) it’s a great business to be in, major growth to be expected in the next few years, and ii) it provides Cox with access to many ad networks to push their own ad networks (newspapers, television, autotrader, etc.) as an optional backfill, thereby extending their reach tremendously. Very smart strategy!

 

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