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How to Raise Venture Capital for a Tech Start-Up

March 2nd, 2010 8:35PM by Brendon Kensel

I recently chaired a venture capital event focused on how to raise VC funding for tech start-up’s that was hosted by Pepperdine’s Graziadio Alumni Network of Orange County. The panelists included: Eghosa Omoigui, Director of Strategic Investments at Intel Capital; Marc Averitt, Managing Director at Okapi Venture Capital; and Stuart MacFarlane, Investment Committee Member at Momentum Venture Management and CEO of iChange.com. The panel was moderated by Alexander Haislip, Senior Editor of Thomson Reuters’ Venture Capital Journal and Private Equity Week.

Entrepreneurs seeking venture capital are facing the most difficult funding climate in over a decade. In 2009 venture capitalists invested $17.7 billion in 2,795 deals, a 37% decrease in dollars and a 30% decrease in deal volume from 2008, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters.

Both Okapi Venture Capital and Momentum Venture Management funded about 30% fewer deals in 2009 vs. 2008. Marc Averitt of Okapi Venture Capital noted that they are, “currently focused on existing portfolio companies, but expect to start looking at new opportunities in 2010.” Stuart MacFarlane of Momentum Venture Management had similar sentiments and indicated that in 2009 all of their funding activity was in support of current portfolio companies. Both Mr. Averitt and Mr. MacFarlane also expressed a keen awareness of the pressure to deliver solid returns to limited partners.

Eghosa Omoigui of Intel Capital indicated that while their investment activity slowed in 2009 they were still very active. According to TechCrunch Dealmaker Rankings, Intel Capital was the fourth most active investor in 2009 investing $429 million in 46 deals. As a strategic investor Intel Capital does not have to live within the same 10-year fund boundaries of traditional venture capital firms. Intel Capital is able to make a broad range of investments and Mr. Omoigui indicated that their oldest portfolio company received funding in 1993, however, this company is preparing to file a S-1 for an IPO.

A video of the event can be found here: http://www.youtube.com/watch?v=MDKxy-lG2CQ

DOE Announces $100 Million in Funding for Cleantech

March 2nd, 2010 5:30PM by Lisa Mazur-White

On March 2, 2010, at the ARPA-E (Advanced Research Projects Agency – Energy) Energy Innovation Summit in Washington, D.C., U.S. Energy Secretary Steven Chu announced that $100 million in Recovery Act funding will be made available to accelerate innovation in green technology. This is ARPA-E’s third funding opportunity of this kind.

There are three areas of focus for this program:

  • Grid-Scale Rampable Intermittent Dispatchable Storage (GRIDS)
  • Agile Delivery of Electrical Power Technology (ADEPT)
  • Building Energy Efficiency Through Innovative Thermodevices (BEET-IT)

ARPA-E’s first solicitation, announced in early 2009, was highly competitive and resulted in funding 37 projects aimed at transformational innovations in energy storage, biofuels, carbon capture, renewable power, building efficiency, vehicles, and other areas. ARPA-E’s second solicitation announced in December, 2009 – which has yeilded nearly 500 concept papers – focused specifically on three areas of technology representing new approaches for biofuels, carbon capture, and batteries for electric vehicles. Here is a complete list of ARPA-E’s funded projects.

The objective of the ARPA-E funding is to give innovative ideas that are too risky for traditional venture investment an opportunity to get beyond the concept stage. ARPA-E funding “is about unleashing the American innovation machine to solve the energy and climate challenge, while creating new jobs, new industries and new exports for America’s workers,” said Secretary Chu.

Renewable Energy Grants through ARRA

March 2nd, 2010 5:13PM by Lisa Mazur-White

In August of 2009 the Treasury began accepting applications for the 1603 Grant. The 1603 Grant was enacted as part of the American Recovery and Reinvestment Act and its goal was to provide a 30% cash grant of total renewable energy property installed. The grant was in lieu of the then-existing Section 48 tax credit, which provided a 30% tax credit for owners of renewable energy property (as it is defined in Section 48 of the Internal Tax Code). The goal of the program was to uphold renewable energy incentives in an economy where fewer applicants could take advantage of tax credits due to the overall state of the economy.

But how is the 1603 Grant program doing? To date, Treasury has issued $2.6 billion in grants under the 1603 Grant in Lieu of Tax Credit. The majority of recipients are solar and wind energy applicants. Click here to view a list of recipients of the 1603 Grant to date.

Strategic Buyers will lead M&A Activity in 2010

January 30th, 2010 3:12PM by Brendon Kensel
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Source: Dow Jones VentureSource

The M&A market the past twelve-months has been weak, but strategic buyers will likely lead an increase in deal activity in 2010. Financial buyers have continued to be challenged with the lack of credit availability while many potential strategic buyers are sitting on cash or have some access to existing lines of credit. We saw an increase in M&A activity in Q4 2009, but I expect deal makers to very creative this year to get deals done.

Since the economic crisis began many firms have streamlined operations and increased their cash positions. This improvement in financial health is expected to produce an increase in mergers and acquisitions as firms try to kick-start their growth.

While venture-backed companies may seek an IPO exit in 2010, I expect strategic buyers to emerge as the more likely exit. According to Dow Jones VentureSource there are 25 venture-backed companies currently in IPO registration, but there were 86 M&A transactions in Q4 2009 generating $7.3 billion. Amazon.com’s (NASDAQ: AMZN) $847 million purchase of Zappos.com was the largest deal of Q4 2009.

Mergers and acquisitions are off to a brisk start in Q1 2010 with several transactions in the media and marketing sectors. A few deals follow: Dentsu, Japan’s largest ad agency, acquired Innovation Interactive, the parent of digital ad shop 360i; AOL (NYSE: AOL) acquired StudioNow, an online platform for content creation and distribution, for $36.5 million in cash and stock; and LivePerson acquired web analytics company NuConomy for $3 million.

I contacted Alexander Haislip, senior writer at Thomson Reuters’ Venture Capital Journal and a columnist for Private Equity Hub, to get his point-of-view on the M&A outlook for 2010, particularly in the cleantech sector. “There’s a great opportunity for innovation in the cleantech M&A where startups license their technology to big manufacturers who can put it directly into production,” commented Mr. Haislip. “Project financing for cleantech is way off levels we saw just a few years before and it is harder for ever for entrepreneurs to connect with expansion capital. Investors may find their best hope for at least partial liquidity in 2010 is through licensing. That’ll mean tangoing with the likes of The ABB Group (NYSE: ABB), GE (NYSE: GE), First Solar (NASDAQ: FSLR), and a host of other biggies that have yet to make their intentions known.”