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Investing in Software, Internet

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Raise a blind' pool of capital. Invest the money over 5 years ... Acceptance of downloads. Thriving industry, geographic, and market blogs ... – PowerPoint PPT presentation

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Title: Investing in Software, Internet


1
Investing in Software, Internet Technology
Enabled ServicesVenture Association of NJ
January 15, 2008
Crossbar Capital
2
Agenda
  • The dynamic of my business
  • Market leadership lifecycle
  • Investment opportunities
  • Summary investment strategy

3
The Venture Business
  • Raise a blind pool of capital
  • Invest the money over 5 years
  • Diversify risk by creating a portfolio
  • Hope to return capital AND 20 compounded
    return (net of fees) over 10 years

4
Market Leadership Lifecycle
5
Opportunity Knocks- IT Market Lifecycles
  • Always start small with vendor denial and few
    competitors

6
Opportunity Knocks- IT Market Lifecycles
  • Always start small with vendor denial and few
    competitors
  • Steep growth ramps attract many competitors, VCs
    and exits

7
Opportunity Knocks- IT Market Lifecycles
  • Always start small with vendor denial and few
    competitors
  • Steep growth ramps attract many competitors, VCs
    and exits
  • Aligning performance with investment timing is
    essential
  • Capital too early run out of oxygen
  • Capital too late roll-up or sell to gorilla
  • Just in time proper execution and market
    momentum will drive hyper-growth

8
Opportunity Knocks- IT Market Lifecycles
  • Always start small with vendor denial and few
    competitors
  • Steep growth ramps attract many competitors, VCs
    and exits
  • Aligning performance with investment timing is
    essential
  • Capital too early run out of oxygen
  • Capital too late roll-up or sell to gorilla
  • Just in time proper execution and market
    momentum will drive hyper-growth
  • Returns predicated on leadership attained via
  • Category creation
  • Existing category disruption

9
Opportunity Knocks- IT Market Lifecycles
  • Always start small with vendor denial and few
    competitors
  • Steep growth ramps attract many competitors, VCs
    and exits
  • Aligning performance with investment timing is
    essential
  • Capital too early run out of oxygen
  • Capital too late roll-up or sell to gorilla
  • Just in time proper execution and market
    momentum will drive hyper-growth
  • Returns predicated on leadership attained via
  • Category creation
  • Existing category disruption
  • Investors challenge is to have a process that
    efficiently identifies and then participates in
    the right ones in a timely manner

10
Traditional IT Lifecycle
11
Traditional IT Lifecycle
12
Traditional IT Lifecycle
13
Traditional IT Lifecycle
Integrated
14
Traditional IT Lifecycle
Best of Breed
Growth Phase
Integrated
Consolidation
15
Traditional IT Lifecycle
Oracle
Best of Breed
Growth Phase
PeopleSoft SAP Siebel Retek Symantc MSFT
JD Edward Lawson I2 Informatica Webmethods
Navisoft Great Plains
MSFT Oracle SAP IBM ?
Integrated
Consolidation
Winners
16
Internet 4Cs Experiencing Similar Dynamics
ICQ
Best of Breed
Growth Phase
Digg Hotmail Oddpost Skype MySpace
Dialpad Kazaa Usendit Pando Flickr
del.ici.ous Pyra Labs Picassa Dialpad
Yahoo eBay MSFT Google
Consolidation
Integrated
Winners
Winners
17
Explosion of New Affecting Internet Markets
  • Too numerous and fast moving to properly
    identify, but formally arcane markets include
  • Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss,
    Wiki, Soa, Ajax, Open Source, On Demand,
    Virtualization, Social Networks, Mash-ups

18
Explosion of New Affecting Internet Markets
  • Too numerous and fast moving to properly
    identify, but formally arcane markets include
  • Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss,
    Wiki, Soa, Ajax, Open Source, On Demand,
    Virtualization, Social Networks, Mash-ups
  • How many 1B market cap realizations from these
    segments?

19
Explosion of New Affecting Internet Markets
  • Too numerous and fast moving to properly
    identify, but formally arcane markets include
  • Phishing, Clickfraud, Blog, Vlog, p2p, Voip, Rss,
    Wiki, Soa, Ajax, Open Source, On Demand,
    Virtualization, Social Networks, Mash-ups
  • How many 1B market cap realizations from these
    segments?
  • Not every investment requires a billion exit

20
Market Opportunities
21
The Enterprise is Ripe for Business Model
Disruption
  • Sales and Marketing SM inefficiency issues are
    being addressedby learning from the consumer
  • Acceptance of downloads
  • Thriving industry, geographic, and market blogs
  • Remote support (to lower cost regions) or
    automated support

22
The Enterprise is Ripe for Business Model
Disruption
  • Sales and Marketing SM inefficiency issue are
    being addressedby learning from the consumer
  • Acceptance of downloads
  • Thriving industry, geographic, and market blogs
  • Remote support (to lower cost regions) or
    automated
  • SM has the potential to move down from 50-60 of
    vendor spending to 30-40

23
The Enterprise is Ripe for Business Model
Disruption
  • Sales and Marketing SM inefficiency issue are
    being addressedby learning from the consumer
  • Acceptance of downloads
  • Thriving industry, geographic, and market blogs
  • Remote support (to lower cost regions) or
    automated
  • SM has the potential to move down from 50-60 of
    vendor spending to 30-40
  • Broadband enables small(er) vendors to
    efficiently reach global customers

24
The Enterprise is Ripe for Business Model
Disruption
  • Sales and Marketing SM inefficiency issue are
    being addressedby learning from the consumer
  • Acceptance of downloads
  • Thriving industry, geographic, and market blogs
  • Remote support (to lower cost regions) or
    automated
  • SM has the potential to move down from 50-60 of
    vendor spending to 30-40
  • Broadband enables small(er) vendors to
    efficiently reach global customers
  • Challenge is weighing lower ASPs and deferred
    maintenance/support revenue with capital
    requirement to support market share scale

25
Across all Segments, Disruptive Factors Decrease
Initial Capital Thirst
  • Early stage software/internet investing becoming
    LESS capital intensive
  • SM leveraging the Internet communication
    paradigm
  • RD leveraging open source tools

26
Disruptive Factors Decrease Initial Capital Thirst
  • Early stage software/internet investing becoming
    LESS capital intensive
  • SM leveraging the Internet communication
    paradigm
  • RD leveraging open source tools
  • Ready supply of 2nd time entrepreneurs
  • Experienced the boom/bust
  • Know how to prioritize resources
  • Dont need the initial cadre of VPs

27
Disruptive Factors Decrease Initial Capital Thirst
  • Early stage software/internet investing becoming
    LESS capital intensive
  • SM leveraging the Internet communication
    paradigm
  • RD leveraging open source tools
  • Ready supply of 2nd time entrepreneurs
  • Experienced the boom/bust
  • Know how to prioritize resources
  • Dont initially need the cadre of VPs
  • Users acclimated to remote or computer generated
    support

28
What this Means for Investors and Entrepreneurs
  • Opportunity to invest within the explosion of
    niches that are rapidly growing into viable exit
    markets (e.g. Vocus IPO)

29
What this Means for Investors and Entrepreneurs
  • Opportunity within the explosion of niches that
    are rapidly growing into markets (e.g. Vocus IPO)
  • Be wary of timing two profitable entrance points
    are
  • at the top of the triangle or
  • consolidate at the midpoint

30
What this Means for Investors and Entrepreneurs
  • Opportunity within the explosion of niches that
    are rapidly growing into markets (e.g. Vocus IPO)
  • Be wary of timing two profitable entrance points
    are
  • at the top of the triangle or
  • consolidate at the midpoint
  • Align capital consumption with leadership/exit
  • Lead, or exit, to the leader or contender
  • Know the ecosystem

31
Investment Strategy
32
Summary Core Investing Principles
  • Invest only where the potential exists to be a
    market leader
  • IP Driven- Market creation through fundamental
    technology shifts
  • Business Driven- Market disruption through
    business model shifts
  • Marketing Driven- Niches which will emerge into
    markets

33
Summary Core Investing Principles
  • Invest only where the potential exists to be a
    market leader
  • IP Driven- Market creation through fundamental
    technology shifts
  • Business Driven- Market disruption through
    business model shifts
  • Marketing Driven- Niches which will emerge into
    markets
  • Primary investment strategy is the identification
    of new markets expected to experience tornado
  • Initial value creation driven by market growth
  • Exit timing determined by ability to
    seize/maintain leadership position (execution)
  • Exit alignment with founder(s) is essential
  • Technology and competitive environment moving so
    rapidly that real-time involvement is critical
    (for leadership execution and exit)

34
Summary Core Investing Principles
  • Own enough of the winners
  • Capital efficiency and rapid time to market
    minimizes large capital early stage risks
  • Build a portfolio of early stage/high ownership
    situations. Blend of IPO disrupters, Market and
    IP disrupters
  • Disciplined process to determine which are
    entitled to deeper support
  • Exit Early from market share laggards
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