July 5, 2025

Start-Up Investors Grow Wary of Tech Ventures After Facebook’s I.P.O.

“Earlier, entrepreneurs didn’t need a real monetization strategy,” said Brian O’Malley, an early investor at Battery Ventures. “They could punt on revenue indefinitely because their investment dollars were their revenue. They could fund their start-ups with funding versus customers.”

No longer favored are e-commerce start-ups, which face logistical hurdles and require a lot of money. The celebrated shift to smartphones, once welcomed with an outpouring of investments, is now making some investors nervous as monetization proves harder for mobile devices than it did for the Web.

Investors have also grown weary of start-ups and applications that rely entirely on Facebook, Twitter and LinkedIn for customers, now that those companies are focused on their own bottom lines. And Silicon Valley is discovering that while it may be easier than ever to start a company, it is harder than ever to build an enduring business.

Younger start-ups are beginning to feel the pinch. CB Insights, a research firm, analyzed 4,056 initial, or seed, investments made in tech start-ups in the United States since 2009. It found that more than 1,000 start-ups that attracted seed financing from angel investors — wealthy investors who put in money from their own pockets — will find themselves orphaned this year when venture capitalists reject their requests for more money. As a result, $1 billion in angel investments will evaporate.

That carnage hardly compares to the bursting of the dot-com bubble in 2000, when $3 trillion was lost on the Nasdaq, but it is enough to give Internet investors and entrepreneurs pause.

CB Insights predicts that Internet start-ups will be the hardest hit, because they have attracted more seed money than enterprise and hardware companies but will most likely have a harder time securing follow-up investments.

Part of the problem is simple math. Angel investors seed businesses with small sums, often less than $1.5 million. But to grow a business, entrepreneurs eventually have to solicit financing from the venture capitalists who invest on behalf of endowments, pension funds, foundations and the like. And while the number of angels eager to write checks has increased, the number of active venture capitalists has decreased.

But investors say it is not just the bottleneck that is to blame. The realities of building an enduring business are starting to sink in. “It has never been easier to start a company, and never harder to build one,” said David Lee, a venture capitalist at SV Angel, an early-stage investment firm.

David O. Sacks, a Silicon Valley executive who sold Yammer to Microsoft for $1.2 billion last year, summed up the challenges in a bearish note on Facebook last August.

“I think Silicon Valley as we know it may be coming to an end,” Mr. Sacks wrote. “To create a successful new company,” he said, entrepreneurs have to find an idea that “has escaped the attention of the major Internet companies, which are better run than before.” To attract follow-up money, new companies now have to prove themselves for less than $5 million.

On top of that, they must be “protectable from the onslaught of those big companies once they figure out what you’re on to,” Mr. Sacks said. “How many ideas like that are left?”

Mr. Sacks’s comments were widely debated within Silicon Valley. One of his most vocal critics was Marc Andreessen, the co-founder of Netscape and of Andreessen-Horowitz, a venture capital firm, who said on Facebook that the opportunities for start-ups were “unending.”

But start-ups are finding that their supply of capital is not. “The valuations got ahead of themselves,” said Rich Wong, a venture investor at Accel Partners. “Where people only paid attention to multiple quarters, now they are looking more than a year ahead for projected results.”

Mr. Wong said e-commerce companies in particular were drawing closer scrutiny. Investors who took note of Amazon’s $1.2 billion acquisition of Zappos and its $540 million purchase of Quidsi, the owner of Diapers.com, poured millions into e-commerce sites, only to discover that they are difficult to run.

Gilt Groupe, a flash deal site for fashion, raised some $220 million in capital but is still not profitable. Last year, the company was forced to cut staff. It is scaling back on smaller brands like Gilt Taste and Park Bond, and it has put Jetsetter, its popular online travel site, up for sale. Fab.com, a daily deal site for design, raised money at a lower valuation than it had planned because of Facebook’s troubled I.P.O. Investors also predict that Zulily, a flash deal site for mothers, will have a hard time justifying its recent $1 billion valuation.

ShoeDazzle, Kim Kardashian’s shoe site, raised $66 million and Lot18, a flash deal site for wine, raised $45 million from investors impressed with their user growth. Both companies were forced to make staff cuts last year.

Article source: http://www.nytimes.com/2013/01/14/technology/start-up-investors-grow-wary-of-tech-ventures-after-facebooks-ipo.html?partner=rss&emc=rss

Kodak to Sell Patents for $525 Million

   Under the terms of the deal, Kodak will be paid $525 million by a consortium led by Intellectual Ventures and the RPX Corporation. The two companies plan to pay for part of the sale by licensing the intellectual property to 12 other companies. The company had once valued its portfolio of 1,100 digital imaging patents at $2.6 billion.

  Kodak filed for bankruptcy protection in January after decades of trying to reinvent itself, most recently trying unsuccessfully to break into the consumer printer market. It also announced in August that it would sell its film business, which had made Kodak a household name.

  “This monetization of patents is another major milestone toward successful emergence,” said Antonio M. Perez, Kodak’s chairman and chief executive officer, in prepared remarks.

Mr. Perez said the patent sale would help the company pay a “substantial amount” of a debtor-in-possession loan that it obtained after filing for bankruptcy. The sale also meets a major provision of a November loan that required Kodak to sell its patent portfolio for no less than $500 million.

   Mr. Perez said the company was now focused on building its commercial imaging business, which includes printing and packaging for businesses. The company believes it has “significant competitive advantages and strong growth prospects,” according to its news release.

   The sale is subject to the approval of United States Bankruptcy Court.

Article source: http://www.nytimes.com/2012/12/20/business/kodak-to-sell-patents-for-525-million.html?partner=rss&emc=rss