If I was a VC I would be taking advantage of the sparse funding available for later stage deals and depressed valuations to chase down a handful of deals that I think will end up being substantial companies with a reasonable probability of a good exit.
From what I understand, this is basically what IVP did with Twitter, with Benchmark then being pulled into the fray once Twitter was in play for an investment (until IVP pursued Twitter, the Twitter founders kept claiming they didn't need to raise any more money)
Companies I would pursue*:
- Mint.com. Mint has a great model, a market leading position, and access to tons of interesting and unique data that leads to some pretty direct monetization opportunities. They have solid user growth and traction, and nice repeat use. They will have a great exit. Now may be the last chance to get in reasonably cheap.
- Coupons Inc. Really fast growth in coupon volume, a patent based monopoly on online coupons, a crappy macro econ environment in which people want more coupons. Oh yeah, and as far as I know they have never taken any VC money.
- Playdom. Zynga gets all the press, but also probably sports a higher valuation per $ revenue or per user. Playdom is a leading player in social gaming and is on a rapid growth (and monetization) curve. I think the danger is that (a) certain short term aspects of social media monetization (i.e. offers) will soon collapse in value and (b) as a social gaming company they constantly need to be iterating on the next hit. But despite these risks I think the company is on a tear and the traditional gaming companies (e.g. EA) are still totally lost when it comes to social gaming. Playdom just recruited John Pleasant, the COO of EA as their CEO, so perhaps this would make them harder to pick off to fund :)
- Admob. When I was as intern at Cisco many years ago one of my mentors there said "growth covers up for A LOT of mistakes". The mobile web is now exploding due to iPhone et al, and a rising tide raises all ships. Just as Cisco benefited from the rise of the Internet/IP everywhere, AdMob is well positioned to capitalize on mobile web explosion. Further, there are a number of great potential buyers for the company if the company decides not to build to an IPO (Microsoft, AOL, etc. will all need mobile stories, and some of them really want to build out their ad networks). That said AdMob faces potential strategic challenges as the mobile web shifts dramatically from WAP to iPhone and Apple effectively controls the channel and could potentially partner with Google to compete in ads.
- Cloudera. Alas - in this case Greylock beat me to it! Greylock was smart to make the investment in Cloudera right now. Cloudera is rapidly gaining traction as an industry leader in a market that will continue to grow due to the masses of data being accumulated everywhere (e.g. bioinformatics, digital media, advertising etc.) and hadoop will be increasingly all pervasive. I think the most likely outcome is an exit to IBM, HP or the like, but now is the time to invest.
- SMSgupshup. OK, maybe the exit here won't be huge given the India market focus / lower value per user, but I think this company is pretty cool.
- Fixya. Like many SEO-driven businesses, it took Fixya 18+ months to really ramp up and get traction, but they have recently hit the "virtuous cycle ramp" where users are generating content to attract users who generate more content. Fixya has some interesting monetization opportunities it can capitalize on. Not sure they will ever be a consumer brand (and benefit from the value of a brand) but they could be a great SEO driven business.
- Twitter. I would only invest in Twitter at this point if I was a VC looking to build my brand as a consumer internet investor. Twitter's internal valuation is probably quite high at this point, but at the same time I think they will have a $1 billion+ exit. So the return on Twitter itself might be sucky (i.e. somewhere in the "government bonds to 2X range"), but from a brand building exercise it might be worth it if I wanted to build a consumer internet/digital media franchise for my venture fund. (I will write a future post on brand building for VCs in digital media later)
So what do you think? What companies would you invest in if you were a VC and why?
If you like this - feel free to subscribe to this blog / RSS. I will be posting about VC brand building shortly.
*Disclaimer: I have zero inside knowledge into these companies and don't have access to their internal metrics. So this is me making guesses best on total stabs in the dark on what I think is interesting medium term.