2009: A Year of Opportunity
Courtesy of Roger Ehrenberg at Information Arbitrage
2009 entered like a lamb. A tired, wounded lamb. The financial markets were in shambles. Consumer confidence had plummeted. Fear permeated almost every walk of life. Holiday parties a year ago were filled with gallows humor: "Boy, this has been a crappy year. How can things get much worse?" From a public markets standpoint, they did get worse until an abrupt V-turn in April caused both equity and credit markets to soar. Confidence began to creep back into the picture, though the average consumer – as well as the largest venture capitalists – were still feeling a chill from the economic downturn. 2009 is closing on a big up note, with continued strength in the equity markets coupled with some apparent improvement in the labor markets. With rising interest rates in the offing, however, there is still plenty of uncertainty going into 2010 – notwithstanding the historic Wall Street payouts.
From a personal standpoint, I couldn’t have imagined how fertile the environment would be for early-stage investment. I personally invested in 12 companies during 2009 across my three areas of focus: financial technology, advertising technology and digital media (only 10 are listed on my IA Capital Partners deal page as two of the companies are in stealth mode). Even more importantly, both my legacy portfolio and my 2009 vintage companies performed well from an operating perspective, notwithstanding the challenging economic environment. Being a small, non-institutional investor with liquidity gave me opportunities to deploy capital at attractive valuations with terrific entrepreneurs without butting heads with larger venture funds. 2009 also saw the rise of the small and nimble venture fund ($15-$40MM), with the ability to write $250-$750K checks and roll up the sleeves to help nascent entrepreneurs succeed. Founder Collective (Domdex, AdSafe Media), Contour Ventures (Ticketfly) and Metamorphic Ventures (OrcaOne) are but three of the VCs in this size range who have been great partners to work with. And while Betaworks isn’t technically a fund, I put them into this same camp of hands-on, value-added partner (Bit.ly, TweetDeck, Stocktwits). I also have had the pleasure to work with some larger venture funds who are willing to invest early in a company’s evolution and act like smaller VCs, but with the resources to finance continued growth as circumstances warrant. True Ventures and Foundry Group fall into this category. They have shown me that being larger doesn’t mean being impersonal and risk-averse.
While social media might seem over-heated, in many ways it feels as if it is just now coming of age. Buddy Media saw astonishing growth in 2009, fueled by brands’ recognition of the importance of social media and the power of ROI-based online campaigns. Ticketfly, which brings state-of-the-art integration of social media and e-commerce to concert venues hit the ground running and is already generating substantial revenues in only its first year. TweetDeck and Bit.ly also witnessed rapid user adoption as Twitter and Facebook continued their inexorable growth, bringing one’s real-time presences together in one place and generating valuable data about online trends. TLists has already indexed hundreds of thousands of Twitter Lists, and rendered them easily discoverable through its powerful semantic search technology. It has also brought a suite of powerful List management tools to publishers, including partners such as the Wall Street Journal, The Atlantic and Huffington Post. And Stocktwits has continued in its mission to bring smart, experienced, action-oriented content to its users and partners such as NASDAQ and Bloomberg.
Like social media, advertising technology has seemed like a field with too many ideas chasing too few scale opportunities, but portfolio companies Invite Media and Domdex have carved out important and valuable niches in the spheres of ad optimization and search re-targeting. My positioning in financial technology has been heavily focused on the systematic/quantitative trading community, having backed Selerity (ultra low latency event notification), Alphacet (high-end quantitative modeling with automated order routing) and my home-grown company Kinetic Trading. Each firm is generating revenues and has momentum going into 2010. I believe that start-ups in predictive analytics, high performance computing, database architecture and event detection will be important areas for investment in 2010.
Thanks to all who helped make 2009 a year to remember. I couldn’t have dreamed of working with such a great group of entrepreneurs and co-investors at the beginning of what was shaping up to be a dismal year. Notwithstanding the inevitable macroeconomic challenges of 2010, I am confident and early-stage investment will continue to provide attractive opportunities for those with the vision – and the guts – to take advantage.
