ImaginativePRO Blog

CASH-STRAPPED COMPANIES OFFER FOOD DEALS IN RETURN FOR CAPITAL

When the lease ran out at cheese maker Ruth Klahsen’s Monforte dairy, she was faced with the prospect of never making her artisanal cheese again.

With no money to invest in her business, she found herself eligible for neither government funds nor bank loans. It looked as though she might have to call it quits – which would have left such fans as Toronto chef Jamie Kennedy without the cheeses she makes by hand from sheep’s and goat’s milk raised primarily by Amish and Mennonite shepherds.

Then she had an unconventional idea: She would go to her cheese-eating public and ask them for money to help build a new dairy.

Her Ontario company offered subscriptions to customers: If they gave her $500 up front, she would pay them back with cheese – $150 worth annually for five years.

Over the past year, Monforte has sold 810 subscriptions (some for more than $500, some for less) to raise a total of $364,000.

“What we’ve done is incredible,” Ms. Klahsen says. “No one thought we’d get to $200,000.”

Monforte’s creative fundraising scheme is just one example of how Canadian food artisans are eschewing mainstream business models to find new ways to support their craft. And they’re finding a receptive audience for their creative financing ventures.

On a farm near Picton, Ont., husband and wife team Vicki Emlaw and Tim Noxon have launched a new way of selling their produce this season. They are offering their customers Vicki’s Veggie Bucks – coupons that can be traded for vegetables during the harvest season at both their farm stand and at the farmers’ markets they attend.

“In farming, there is no cash flow in the wintertime,” Mr. Noxon explains. “When the season ends in the fall, we have no cash until April.”

For the past few decades, this problem had been addressed by the local food movement with the creation of Community Shared Agriculture (CSA), an arrangement whereby you pay the farmer a lump sum at the beginning of the season in return for a box of food every week. The CSA model is different from the way food is traditionally sold because it ensures farmers an income before they plant the crops, as opposed to paying them for the amount of food that is raised once it is picked.

While Ms. Emlaw and Mr. Noxon used to run a CSA plan, they decided to amend this advance-payment scheme because it demanded a lot of extra work, such as packing up boxes for each of their members and making deliveries every week.

As an incentive to attract buyers in the winter before their tomatoes were ripe and the couple had fresh food to sell, they offered a 10-to-15-per-cent discount for every $100 purchased. Already, Mr. Noxon says, they have sold more money’s worth of Veggie Bucks at this point in the season than they would have sold in CSA memberships in the past.

Local Canadian food producers and processors are similarly experimenting with alternative ways of operating. In Sherbrooke, Que., a microbrewery called Boquébière, known for its maple-syrup and honey-flavoured beers made from locally grown ingredients, pays some of the people they do business with in beer.

“They are happy with what we do,” says one of the owners, Michael Parent. “They like our beer and they understand what we are doing when we buy locally.”

One reason people accept beer instead of money, he says, is because the microbrewery is part of a social movement that is rooted in its community.

A similar connection to community also has inspired retailers of local food. The Creemore 100 Mile Store in Southern Ontario opened with its community’s support – literally. The owners, Jacquie Durnford and Sandra Lackie, had an idea to start a grocery store that sold only locally produced food, but they had no capital to invest. So they wrote a business plan and then threw a party on a farm and invited a bunch of women they thought might be interested in investing in their idea. That night, 17 people gave them $1,000 each that Ms. Durnford and Ms. Lackie promised to pay back in five years with annual interest payments.

They went on to raise $47,000 this way and were able to open the store in 2008, one month after the initial party. They used the money to purchase the equipment they needed to open the store, such as fridges and freezers. Today, they run a full-service grocery store that carries meat, vegetables, grains and dairy.

“I’ve never been thanked so much for doing a business,” Ms. Durnford says. “It’s great.”

COMMENTARY:  If I had an investment choice between cheese and beer, I bet you know which deal I would take. BEER!!.  Who the hell needs angel investors or VC's. 

Courtesy of an article dated April 23, 2010 appearing in The Globe and Mail News 

RUMORS: FOURSQUARE TALKING WITH YAHOO, FACEBOOK AND MICROSOFT ABOUT A SALE OF THE SITE

 

There is a lot of action surrounding Foursquare right now. And CEO and co-founder Dennis Crowley has a tough decision to make.

It’s already been widely reported that Yahoo is seriously pursuing a Foursquare acquisition, but now we’re hearing that at least two other companies are in talks or have been in talks recently with the location-based startup as well. And they’re big ones: Facebook and Microsoft. Facebook, from what we’re hearing, has been talking to Foursquare about a range of possibilities in recent weeks, but seems to have cooled on the idea of an outright acquisition. Microsoft, meanwhile, is likely still thinking about buying the company, according to sources.

While we’ve already made the case for why Foursquare shouldn’t sell to Yahoo, these other two players offer other interesting options. And, with multiple bidders, the price is undoubtedly going up, probably north of $100 million. One may make an offer that Crowley can’t refuse.

“Dennis is seriously considering his options,” says one source about these new bidders. That would seem obvious, but remember that Crowley has already sold one startup (Dodgeball) to a big player (Google) and it left a bad aftertaste in his mouth. Following that acquisition, he (and co-founder Alex Rainert, who just joined Foursquare) left Google in somewhat of a huff.  And that’s probably the only reason that Google isn’t also in the running for the hot startup as well right now.

And Crowley does have options. There are also no shortage of people just waiting to put money into Foursquare. Last month, we heard that four VC firms, Accel Partners, Andreessen Horowitz, Khosla Ventures and Redpoint Ventures were all in the running to be the lead investor in a new round of funding for Foursquare. A few days ago, BoomTown reported that Andreessen Horowitz backed out. We’re now hearing that Redpoint may be out as well. But BoomTown also noted recently that Russian firm Digital Sky Technologies (which has pumped a ton of money into Facebook and Zynga) is trying to invest as well. We’ve heard the same thing.

The round, if taken, would probably total $10 million and could value the company around $60 or $70 million. Previously, Foursquare raised a $1.35 million round.

So why not sell? Well, aside from the bad experience Crowley had selling to a big company, Foursquare has been seeing quite a bit of success recently. While the company isn’t yet profitable, it is already making revenue off of some of its partnership deals. And new deals are seemingly being signed on a daily basis. Also, a strong surge of new users post-SXSW helped the service hit 1 million users today.  And businesses are signing up quickly using its newly released tools. 

Foursquare certainly could also opt to take some money off the table in a new round of funding, that would allow its employees to make some money without selling the company.

So why sell? Well, there’s no shortage of thought that Foursquare’s success may be fleeting. Many think that when Facebook does inevitably enter the location space, it will be game-over for many of these services specializing in check-ins. But based on what we’re hearing, that may not be true.

Many people wondered why Facebook didn’t announce any location features yesterday at f8, but as we noted the night before the event, their location plans likely aren’t finalized yet, and they’ve been experimenting with a lot of different things. That includes federating check-ins from services such as Foursquare and Gowalla. As Inside Facebook dug up yesterday in Facebook’s new protocols documentation, its looks like Facebook will be open to accepting location data from other sources. So while they’ve talked to companies like Loopt and Foursquare about possible acquisitions, it would seem that this federation model is what they’re going to stick with for now.

Foursquare and Facebook have also been talking about other types of arrangements, perhaps broader partnerships, according to people familiar with such talks. If that’s the case, maybe Crowley would be crazy to sell to the likes of Yahoo or Microsoft now. If he could leverage the nearly 500 million Facebook users rather than be stomped by them, his service can probably grow even faster.

But, another source believes that Crowley is leaning towards selling. “Who wouldn’t be? 12 months = $100 million. Assume he had 50% when they started and you’re probably talking $20 million plus for him personally. Not a bad yearly bonus.” Indeed.

Neither Foursquare nor Microsoft have returned requests for a comment. Facebook will only say “we don’t typically comment on rumor or speculation.”

COMMENTARY:  This is the biggest bullshit story I have heard.  Somebody having a lot of fun spreading rumors that Facebook, Yahoo and Microsoft are interested in buying Foursquare that online community of location-based freaks who want their friends to know where they are.  Did I forget to mention that Foursquare has practically no revenues?  Before I bought any company, I want to see some revs.  The more the better.  

I can just hear the comments from these location-based freaks saying, "oooh, i know where you are, yes I do.  hehehe.  you can't fool me. you're fooling around with that other girl, aren't you.  Oh my God, you are over at her place right now!!", or some such nonsense.  Only young juvenile's are going to want this service, But when those SMS text message mobile ads start bombarding their cell phones, they will drop out like flies. My prediction for 2010.  Maybe this is a good chance for Crowley to sell out before there is a Foursquare membership revolt.

Courtesy of an article dated April 22, 2010 appearing in TechCrunch  

THE GAP BETWEEN EXIT VALUE VIA M&A AND VC INVESTMENTS NARROWED SUBSTANTIALLY IN 2009

As happened during the technology bust at the early part of last decade, the gap between the amount of venture capital raised by companies and the amount they sold for is narrowing.

According to data from Dow Jones VentureSource, the median acquisition value of a venture-backed company in 2009 was $26 million, which is 1.3 times the median amount of venture capital - $19.8 million - that these companies raised in their lifetimes. That’s less than the 1.5x multiple in 2008, and well below the 3.6x experienced in 2007.

In fact, it’s the smallest gap since the dark times of 2003 when the multiple sat just above 1. The latest first quarter may signal a slight recovery from 2009 - the multiple for the three months was 1.5x.

The shrinking gap is most evident in the health-care space, where the $26.9 million median amount paid for these companies in 2009 is far less than the $41.4 million raised by them. That compares with a 2.3 multiple in 2008 and 2.4 in 2007, and is the easily the smallest ratio in the decade. No wonder investors are looking at ways to lower the cost of developing drugs and medical devices, as we discussed here and here.

Information technology companies haven’t fared much better. On a median basis, these companies barely sold for more than they raised in 2009 ($25 million value versus $21.65 million raised) and an equal amount ($26 million) in 2008. That compares with a 2.7x multiple in 2007.

The services side, however, has produced a wider gap in recent years even if it’s narrowing. Consumer services companies, where VentureSource places all the dot-com, social media and retail companies, sold for a median value of $20 million in 2009, about 3 times more than the median $6.7 million raised. That’s about even with the 3.1x multiple in 2008, though smaller than the 7.7x multiple in 2007 and 10.1x multiple in 2006, the headier days of venture capital.

Likewise, business and financial services companies generated a 3.5x multiple in 2009 ($45 million value vs. $13 million raised) and 3.9x in 2008 ($59.5 million versus $15.5 million).

We previously wrote about this trend in July when things started looking bad and we’ll keep you posted as this year progresses. If the IPO market really recovers, it should drive M&A prices higher and VCs can breathe a big sigh of relief.

COMMENTARY:  Whoa, I knew that liquidity events were terrible in 2009, but I didn't realize things were this bad.  A lot of startup owners weathered the recession by downsizing or shutting down in order to cut their losses.  Those that were lucky enough to find a buyer sold for less than they invested.  I don't think things will be that much better in 2010.  IPO's in 2010 so far are about a third of what they were in 2007, prior to the start of the recession.  Valuations are way down, and this certainly accounts for the shrinking gap between VC investments and the exit via M&A. 

Courtesy of an article dated April 23, 2010 appearing in The Wall Street Journal's Venture Capital Dispatch  

 

ZYNGA, ONLINE GAMEMAKER, TAKES ITS TIME BUILDING GAME APPS FOR THE IPHONE

Why hasn’t Zynga Inc., the social gaming company that is massively popular on Facebook, developed more games for another popular platform, Apple’s iPhone?

Zynga CEO Mark Pincus

At Facebook’s F8 developer conference on Wednesday, Mark Pincus, chief executive of Zynga, detailed some of the reasons for holding back, despite his interest in the platform.

“We remain really interested in the iPhone,” Pincus said during a panel discussion. “We’re big believers that all this will eventually go predominantly mobile. It’s a question of when.”

But the iPhone does not provide enough easy ways for users to interact, Pincus said.

“What kept us from investing heavily in the iPhone is we haven’t seen easy enough user-to-user channels to enable a service to exist,” Pincus said. “We’re not like traditional gaming companies…We want to build users over time along their lifespan.”

The average “lifespan” of a user is 150 days for Zynga, he said, but it hasn’t been able to reach that on the iPhone, where it does have some games such as Live Poker. He is watching Apple’s soon-to-be-launched iPhone Game Center to see if that changes things.

Part of the issue is that there are not nearly as many iPhone users as there are Facebook users - about 50 million compared to 400 million, said Matt Cohler, Benchmark Capital partner.

�

In addition, the iPhone has been popular for location-based services and games such as Foursquare, Gowalla, MyTown and others, but those services focus on friends within a relatively small geographic area, while social games like Zynga’s, by their very nature, seek to get as many people as possible playing, no matter where they are. However, Pincus said Zynga is looking at how location could work with its games.

The other problem with the iPhone, Pincus said, is the time it takes to get an application approved. That’s significant to a company like Zynga that constantly makes updates to games.

“The nature of releasing through the iPhone is you need to submit it and take some number of weeks, five to six weeks, to have the build approved. It’s slowed down our A/B testing. It’s A. Then five weeks later, B,” he said to some chuckles from the audience.

Pincus also discussed another much heralded new platform for developers, Twitter, saying it hasn’t provided outsized opportunities for developers yet.

“If you look at Twitter as a developer, I just don’t see the Twitter platform achieving scale for anyone but Twitter yet,” Pincus said.

No matter which platform a start-up develops for - even a popular one like Facebook - there are risks, Pincus acknowledged.

“Facebook is on a mission to provide the best social networking experience and now more broadly, social experience everywhere,” Pincus said. “They’re not on a mission to make Zynga or social gaming developers successful.”

It’s perfectly within their rights to take on developers by developing their own products, Pincus said.

“If Facebook decides it’s in their interest to build out games or gaming services or networking around gaming, then I assume they’ll do that,” he said. “I don’t think any of us should feel entitled or have taboos around it.”

Pincus said he sees Facebook and Zynga as “aligned” and expects that Facebook will further define its “rules of engagement” with developers about what it wants for itself, which will make things clearer for developers.�

“My mission is very different from Facebook,” he said. “We want to build the best social gaming experience.”

COMMENTARY:� Farmville, oh Farmville, growing crops with your friends.� Feeding the digital�chickens and pigs.�Growing digital fruits and veggies. �It was never like that when I lived on a farm in my youth.� It was dusty, I had to walk what seemed for ever as a first-grader from the farm to the road where my school bus picked me.up.� Sometimes I missed that damn bus, and had to walk back home crying because I�would miss school that day.�

We had no plumbing or water lines, or electricity either.� One of my favorite things was to fetch water for mom, because it gave us kids an opportunity to crank the handle on one of those ground water pumps.� My brother and I got a charge out of filling the toilet bowl, then taking potty and flushing it, then running down to the end of the sewer�pipe that ran undergrond to a sewage ditch a hundred fee from our farmhouse, to see if our work of art would come out the other end.�

Oh, those days.� Farmville, oh Farmville.� You kids have it so easy today.

Courtesy of an article dated April 22, 2010 appearing in The Wall Street Journal's Venture Capital Dispatch

TEXT MESSAGING: THE BEST WAY TO REACH TODAY'S TEENS

Most brands and retailers have not figured out how mobile can really deliver on its promise of sending the right message, to the right customer, at the right time and place -- the ultimate dream of digital marketing. It is not their fault, as many come to mobile marketing with a lens limited by the existing paradigms of TV, Internet and direct marketing.

As many of us know, teens spend an inordinate amount of their waking hours connecting via text messaging (most people can't fathom how the average teen can write 100+ text messages/day), but this doesn't mean that teens want to be marketed too via text. Receiving a retailer's jargon-filled, stiff text message while conversing with a friend can be jarring. So how do we get their attention, while still making it personal and relevant?

My wife likes the idea of taking their phone away to get their attention. But for the average marketer, we have some more constructive techniques -- the one with the most reach being text messaging.

STEP 1: Ask the teen for permission to speak with them via their phone. This goes beyond the legal requirements and begins to open their mind to receiving a message from you via this very personal channel. (Read more about techniques to invite them via a text-based call to action here).

STEP 2: Ensure you share with them the best promotion you have to offer, so you maximize your chances of building a positive exchange through the mobile channel. Many brands just start new members into the regular alerts stream without thinking about the quality of those offers. If you can get your teen hooked in the first 30 days, then you have built some level of relationship equity, which can help you ride through the periods of lower-quality offers.

STEP 3: Be conscious of the "voice" you are using in the mobile channel. Ninety-nine percent of a teen's communication through mobile is person-to-person and usually to their best friends. If your brand comes stomping in with a third-person corporate voice, it will stick out like a sore thumb. Think about how you can create a face and voice behind your brand.

STEP 4: Determine the mobile promotion for your business that makes teens say yes.  ,. Esprit ran a promotion to its text database wherein it offered 20% off all items in store and included a non-unique "ringcode" to allow it to track total redemptions. When it looked at the results, it was surprised to see not a 10% or 20% response rate, but a 200% response rate, with double the number of offers sent being redeemed at point-of-sale. This was the benefit of the viral effect on mobile, with consumers sharing the text with their friends because they felt it was valuable.

STEP 5: Develop an in-store experience that engages. When we look at teen spending habits, much of it goes to in-store spending because they don't have credit cards and they prefer to socialize with friends while they shop. Now, with consumers having a powerful computer in their pockets (a/k/a their phone), super-scalable, hyper-targeted experiences are available for marketers to use that help consumers find what they like, order items that are out of stock in the store or experience guided tours, among other things.

In the end, the best way for a typical retailer or brand to engage teens on mobile is to start by building a segmented text messaging program which allows you to communicate to teens with a separate voice and set of relevant offers just for them.

By giving them value and deals they can share with friends and alerts to significant in-store and brand events, you will maximize their long-term engagement with the brand and ultimately in-store sales. In-store is a huge opportunity. One which teens are primed to take advantage of because of their comfort with their phone, but that is a discussion for next time ...

COMMENTARY:  The key piece of advice in the above is reflected in the next to last paragraph, in the phrase, "communicate to teens with a separate voice and set of relevant offers just for them".  In otherwords, marketers must treat teens like "friends", if you will, with targeted SMS text messages with relevant offers and products.  This means you must know these teens like you know any other consumer, finding out the digital sites and what they buy. 

You can bet that marketers are using social media to reach the teen market, because let's face it folks, this is where most teens are found. If it is not Facebook, the obvious choice, then it is Twitter, MySpace, YouTube or Foursquare.

Courtesy of an article dated April 22, 2010 appearing in MediaPost Publications Engage:Teens  

GROUPON RECEIVES $135 MILLION FROM DST AND BATTERY VENTURES

CHICAGO & MOSCOW--(BUSINESS WIRE)--Groupon, the leading social commerce site, today announced that DST, a leading global Internet investment group, will lead an investment round of $135 million in the Company. A portion of the investment will be used to fuel Groupon’s global expansion, and the rest will be used to facilitate liquidity for employees and early investors. DST comprises the majority of the investment, with participation from Battery Ventures, which is also a new investor in Groupon.

Groupon leverages group buying and social media to provide its millions of customers big discounts on the best local businesses in more than 50 cities across the United States and in Canada. To date, customers have purchased over four million Groupons on deals ranging from spa treatments and golf outings to fine dining and skydiving and have collectively saved over $150 million on these deals.

“Our growth is a reflection of the positive impact Groupon is having on consumers and businesses at a very early stage of the market development,” said Andrew Mason, founder and CEO of Groupon. “We are very pleased and excited to welcome DST and Battery as shareholders and we look forward to benefiting from their vast knowledge and experience of the social media sector as we continue executing on our growth plans in North America and globally.”

“This investment underscores our view that social networking and community based activity will drive, shape and define the web’s evolution in the years ahead,” said Yuri Milner, Chief Executive of DST. “Groupon, with its strong management team, offering and vision, is pioneering social commerce and is redefining the local advertising space. We look forward to being long-term partners of a company that is on a path to becoming a global Internet leader.”

“We’ve followed the social commerce phenomenon for many years, and are thrilled to have the chance to back such a visionary management team,” said Roger Lee, General Partner, Battery Ventures. “They saw a massive opportunity very early, and have executed flawlessly to define it and take the leadership position. We think there is a lot of runway ahead, and are energized to support the team in their quest.”

Founded in November 2008, Groupon has been aggressively expanding to cities throughout the United States, with plans to be in 100 cities by the end of 2010. Earlier today Groupon announced that it has launched its service in Orlando, Fort Worth, Tucson and Toronto, its first Canadian city.

About Groupon

Groupon, launched in November 2008 in Chicago, features a daily deal on the best stuff to do, eat, see, and buy in more than 50 cities across the United States and in Canada, including Chicago, Boston, New York City, San Francisco, Atlanta, Washington, D.C., and Toronto. Groupon uses collective buying power to offer unbeatable prices and provide a win-win for businesses and consumers. The social commerce service is a project of The Point (http://www.thepoint.com), an online community launched in 2007 for organizing group action. Groupon plans to be in 100 cities by the end of 2010. For more information, visit http://www.groupon.com.

To get Groupon’s daily free email for the best in your city, subscribe at http://www.groupon.com.

To learn more on how to become a featured business on Groupon, visit http://www.grouponworks.com.

About DST

Digital Sky Technologies and DST Global (together “DST”), is the largest Internet Company in the Russian-speaking and Eastern European markets and also one of the leading internet investment groups globally to exclusively focus on internet related companies. DST is backed by leading Russian and Western financial institutions and also holds stakes in Internet world leaders such as Facebook and Zynga.

COMMENTARY:  As you all know, I am of the opinion that there are too darn many social networking sites, all fighting for your hearts and minds, and if you are an investor, your capital.  Facebook has won that battle.  However, Groupon, which rhymes with coupon, is riding the latest coupon and discounting trend that many consumer goods and retailers have scurried to as a result of consumer frugalness.

That is an impressive valuation for a startup. Seems when ever a VC invests $100 million on the Internet it is Digital Sky Technologies.  They are the ones who dropped $200 million into Facebook's corporate treasury late last year. Anytime a VC hands over that much cash, they must really believe that Groupon has a very promissing future.

Well worth watching. 

Courtesy of an article dated April 19, 2010 appearing in BusinessWire   

VENTURE CAPITAL INVESTMENTS IN 1ST QUARTER 2010 NEAR ALL-TIME LOWS

Venture investment in U.S. companies rose last quarter compared to a year ago, but the $4.71 billion wagered was still one of the lowest quarterly totals on record, industry data show.

Dow Jones VentureSource

Rising investment in areas such as information technology, business and financial services and energy led to a small gain over the first quarter of 2009, the worst quarter for venture capital deals of that decade. The $4.71 billion spread across 597 financing rounds in the first three months of this year was 11% higher than the $4.24 billion deployed in 522 rounds in the first quarter of 2009, according to VentureSource, a market tracker owned by Dow Jones & Co.

Except for the first three months of last year, however, this year’s first-quarter tally was the lowest for any quarter since the second quarter of 2003, when $4.57 billion was invested. The median amount invested in a round last quarter, $4.5 million, was the lowest since the fourth quarter of 1997, when the median amount was $3.9 million. The 2009 first-quarter median was $5 million.

As expected, first-quarter investment sank below the levels seen in the fourth quarter, when investors typically rush to complete deals before year-end. Firms flooded $6.89 billion into 753 venture financings in last three months of 2009, the data show.

Plunging health-care investment explains much of the start to 2010. Last year health-care funding topped technology investment for the first time, but recently medical investors have grown especially cautious. Some say valuations remain high, and many argue that the regulatory environment is becoming more complex, especially for medical devices.

The $1.17 billion put into 141 health-care financings last quarter was the lowest total since the first quarter of 2003, when $1.13 billion was invested in 117 rounds. The first-quarter total was also 21% below the $1.48 billion invested in 130 rounds in quarter one of 2009.

Another reason for the health-care drop-off is that insiders chose to sustain their companies with small rounds rather than have them raise larger amounts at a low valuation, some investors said.

Information technology, the largest area of investment, saw funding climb to $1.53 billion from $1.33 billion a year ago. But that latest amount, along with the number of deals in the quarter, 192, were still the second lowest totals since at least 2000. Over the past few years, technology investors have been shuffling more money into services companies - whether on the consumer or business and financial side - and into clean technologies.

Generally, though, technology deal-flow could begin to improve as entrepreneurs have started to return with good ideas for new companies, said Jim Watson, managing general partner of CMEA Capital.

In the last two years entrepreneurs and venture investors have been fearful, but now, “There’s a little more confidence to write a check, and less fear to leave a job and do what entrepreneurs always do, swing for the fences,” Watson said.

Renewable-energy investment picked up last quarter, as firms funneled $338.3 million into 25 financing rounds, a 109% rebound from the $161.66 million committed to 10 rounds for these companies during the same period of 2009.

The amount invested and the number of financings in renewable energy were greater last quarter than in any quarter of 2009. But the activity was nothing like 2008, when firms invested $466 million in 21 renewable-energy financings in the first quarter alone.

While last quarter was quiet overall, firms did try to position their mature holdings for success through later-stage rounds.

The median amount invested last quarter in a later-stage financing – third round or later – was $8.47 million, up 9% from the $7.75 million median for these companies during the same period last year.

The median for later-stage companies was the highest since the fourth quarter of 2008, when the median later-stage round was $9.65 million. Meanwhile, the median sum invested in profitable companies more than doubled to $7.5 million in the first quarter compared to the start of 2009.

“VCs are probably giving their better companies a little extra top-off so they can get a lot of momentum going in light of what looks to be a favorable exit environment,”  said Bryan Pearce, director, Americans venture capital advisory group for Ernst & Young.

Exiting opportunities did perk up a little last quarter. Eight venture-backed companies went public in the U.S. last quarter, the same number as for all of 2009, for example. And while the number of companies acquired last quarter, 77, was the same as the first quarter of 2009, the amount raised through those deals climbed to $3.96 billion from $3.45 billion, according to VentureSource.

COMMENTARY:  Looks like another tough year for raising VC monies.   Just exchanged emails with a VC friend in the green sector and he is looking for deals.   So if you think you measure up, and close to commercialization, give me a ring.

Courtesy of an article dated April 17, 2010 appearing in the Wall Street Journal's Venture Capital Dispatch 

 

LEVI'S GOES HIGH-END WITH A LINE OF $198 SUPER-PREMIUM JEANS

In the wake of a recession that caused consumers to question the value of $198 jeans, Levi Strauss & Co. is reintroducing consumers to its $198 jeans.

The 157-year-old company is trying to reinvent itself as not just a purveyor of basics but as an edgier brand suitable for the fashion cognoscenti. By opening lavish boutiques, like one in London, renaming its high-end labels, and hiring executives from competing designer brands like Ralph Lauren and 7 for All Mankind, the company is seeking to improve its fashion street cred, a move that it hopes will reignite sales, which have stabilized at around $4 billion annually after peaking at $7.1 billion 1996. 

The company doesn't disclose dollar sales of its expensive jeans, which are a small part of its business. They are important, however, because they cast a halo over the brand name.

The latest results look positive: On Tuesday, Levi's reported that it earned $56 million in its first fiscal quarter ended Feb. 28, up 17% from a year earlier. Revenue rose 9% to $1.04 billion, on growth of the brand's world-wide footprint and favorable exchange rates. On a constant-currency basis, the company said net revenue rose 4% in the quarter. Levi's is closely held but it reports results because of its publicly traded debt.

Levi missed out on the premium denim craze that began several years ago as it focused on more pressing issues— namely a crushing debt load, the result of a buyout that consolidated ownership in the hands of a few descendants of the founder.

Levi brought in turnaround experts Alvarez & Marsal in late 2003 and the resulting retrenchment was fortuitous. Because Levi had restructured its operations prior to the onset of the recession, it was better positioned than competitors to survive, says Jeff Feinberg, managing director at Alvarez & Marsal. "The people who were running the company were prepared for it—they had been through the wringer already," he says.

Now, as competitors have slowed retail expansion or closed stores, Levi's is using its strong cash position to burnish its image and grab market share. It opened 154 stores last year, including the acquisition of 73 Levi's and Dockers outlets, compared with 60 the prior year.

"It was our intent going into the recession that we would be able to attack coming out of the recession," says Robert Hanson, president of Levi's Americas division, which saw sales rise 7% in the quarter to $545 million on a constant-currency basis.

"We are going to continue doubling down on our efforts to build the brand," says chief financial officer Blake Jorgensen. As evidence: The company spent $426 million in its most recent quarter on selling, general and administrative expenses, up 26% from $339 million a year earlier.

The high-fashion overhaul comes a year after Levi created a "super-premium" division based in Amsterdam called "Levi's XX." The company has since consolidated several Levi's premium sub-brands under just two names: Made & Crafted, a premium denim line featuring better fabrics and fit, and Levi's Vintage Clothing, offering reproductions of items from the brand's historical archives. The Levi's Premium and Capital E lines as well as several other high-end names were discontinued.

Levi also started distributing to unconventional retailers, like New York's Opening Ceremony boutique, where it unveiled $148 corduroys, and J. Crew, where $200-plus dark wash men's jeans are paired with classic Red Wing work boots. All the while, Levi's focused on improving its bigger, more affordable lines, adding trendier styles.

Levi's finds its brand particularly challenged in Europe, where it generates about a quarter of its global sales. Operating profit in Europe fell 40% last year as retail clients slashed orders. But in the first quarter of 2010, European sales rose 6% on a constant-currency basis to $306 million. The company attributed the gains to the 2009 acquisition of the footwear and accessory license in the region, which gave it better control of design and quality, and the expansion of the company's retail network.

 

Last year, to bolster its image internationally, Levi's standardized the fit of its classic 501 jeans, rather than have the fit vary from country to country, and launched its first global ad campaign.

Earlier this month, Levi Strauss overhauled its biggest store in Europe, a 8,500-square-foot boutique on London's Regent Street, home to high-end retailers such as Burberry. Modern shelving mixes with history: Downstairs, a 1920s pair of Levi's jeans unearthed in the Mojave Desert sits in a display case.

At the same time, the Made & Crafted premium denim line began arriving at luxury retailers such as Saks Fifth Avenue and Barneys New York.

Levi's says it is has no intention to stray too far from its salt-of-the-earth roots as the uniform of choice for 19th century laborers. "Luxury is the antithesis of Levi's," says Armin Broger, president of Levi's Europe, Middle East and Africa division.

Another reason why Levi's may be polishing its global image: to prepare for an IPO. Analysts have speculated that family-owned Levi was preparing to go public ever since it brought in Mr. Jorgensen as CFO from Yahoo Inc. last May. More recently, the sale of the Tommy Hilfiger brand to Phillips Van Heusen Corp. for $3 billion, led to predictions that Levi may be trying to set itself up for a sale.

"I can say nothing about [a sale or an IPO] other than we're focused on operating the business as we have for 150 years, and if the opportunity comes along to change the capital structure, we will consider that, but we have nothing planned right now," said Mr. Jorgensen.

COMMENTARY:  The premium-priced jeans market, or jeans over $100 a pair, was hit very hard, as was the overall retail sector, by the recession as consumers chided away from luxury items.  

Premium-priced jeans were hot prior to 2007, but once the recession picked up steam, you saw sales take a nose dive.  The problem: just too damn many premium-priced jeans, intense competition and shrinking demand.  The results were predicable as makers of premium-priced jeans began discounting.

Although I applaud Levi's early results at selling premium-priced jeans, consumers are only now beginning to buy again, slowly, but gradually.   The way they rapidly increased their selling, general and administrative expenses by 26% in the past year is a bit risky as is their strategy of "attacking" coming out of the recession. 

Levi's has always been perceived as the maker of comfortable, durable and low-priced jeans catering to a more mature market, so the strategy of entering the premium-priced jeans market is quite risky.  However, I do agree that it was necessary to establish new brand names for their higher-priced jeans 

Courtesy of an article dated April 14, 2010 appearing in The Wall Street Journal

 

   

SURVEY: MORE THAN 40% OF IPAD BUYERS OWN AN IPHONE, EARN MORE THAN $100,000

Apple announced last Thursday that 450,000 iPads had been sold since arriving in stores the prior Saturday. So who are these early adopters? Not surprisingly, they look a lot like iPhone owners. In fact, 43% already have iPhones and nearly half (48.7%) own iPod touch devices, according to a new iPad user survey from iPhone- and iPad-centric mobile ad network AdColony.

Note:  Click HERE to download a more readible PDF version of the iPad Survey 

Among other findings, the firm found that 44.3% have a household income level of $100,000 or more and 58% have bachelor's or graduate or other professional degrees. More than two-thirds (65.5%) are male, and 34.5% are female.

In terms of age, people 35 to 44 made up the biggest single segment of iPad owners. Those 25 to 34, 45 to 54, and 55 and over each represented about 20% of the iPad user base. The college-age crowd was 7.5%, and teens were just 3.5%. Like iPhone owners, iPad users skew older, male and more affluent than the general population. As more iPads are sold, the typical user may come to reflect a broader cross-section of consumers.

A study by the mobile ad network in January, for instance, found 57% of iPhone users were male, compared to the 65% reported by AdColony for the iPad. The split among different age groups was also more even for the iPhone than the iPad. That more than 4 in 10 iPad buyers to date have incomes over 100,000 is also eye-catching, and seems likely to even out gradually over other income groups.

That's partly because demographic figures for the former are based on a far larger sample, and about 50 million iPhone and 35 million iPod touches have been sold to date.

While the iPad has been described as a big iPod, its minimum $500 price means that most kids will have to rely on a parent buying one to get their hands on the tablet. So the iPad will definitely skew older than the iPod touch audience, which a separate AdMob study last year found was composed 69% of 13- to-24-year-olds.

So when it comes to the audience it represents, at least initially, the iPad is more like a big iPhone. While brands may have to rejigger their ad formats to take advantage of the iPad's larger screen and unique features, they don't have to recalibrate their messages to a much different segment.

AdColony, a unit of mobile developer Jirbo Inc., specializes in serving video ads in iPhone and iPad apps for clients including CBS Mobile, Initiative, Sony Pictures, Lionsgate, and Scion.

COMMENTARY:  We need to keep this iPad Survey in perspective.  This survey represents the demographics for the so-called "innovators" or "early adopters" that are the very first consumers to adopt a new product or technology.   They are trend-setters, media and technology geeks and the first to adopt new technology products. 

Early adopters represent between 10%-15% of all buyers in the first three months of a products life cycle.  Assuming that Steve Job's predictions of sales of 10 million iPads in the first year hold true, then the early adopters will purchase 1-1.5 million iPads during the first three months.  So far, Apple has sold 450,000 iPads in just the first week following the launch of the device.  Therefore, sales to early adopter currently represent 30% to 45% of the projected early adopter. That's a very impressive and phenomenal pace.  If Apple can sell just 100,000 iPads per week over the remaining 11 weeks, they will sell another 1,100,000 units for a cumulative total of 1.450 million units which appears to be on pace at the high-end of the early adopter number. 

As the survey demographics clearly illustrate, the majority of iPad buyers are Apple evangelists who already own another Apple product.  I call this the "Apple Lemming Effect" or "Apple Syndrome", a form of consumer brainwashing that goes back to when Apple was founded.  Steve Jobs hooked these consumers when they were teens and they are now the very first buyers of new Apple products.  They provide that initial boost that a new product must have in order to be successful. 

Courtesy of an article dated April 13, 2010 appearing in MediaPost Publications Online Media Daily 

TALBOT'S EXECUTES SUCCESSFUL TURNAROUND AND ADDS A NEW, MORE YOUTHFUL LOOK

After spending last year atop the retail death-watch list, Talbots Inc. is now a favorite on Wall Street, thanks to cost cuts and a complex financial arrangement for unloading its enormous debt.

Talbots

Talbots' fall line features trendier jeans and prints as it attempts to attract younger shoppers to its brand.

But to solidify its comeback and boost sales, Talbots must complete a merchandise and image overhaul aimed at attracting younger customers. And that's a tall order for a brand that many women think of as perfect for their grandmothers.

Tuesday, analysts expect the retailer to report its second quarterly profit in a row after five quarters of losses. Analysts forecast a profit of two cents a share, compared with a loss of $1.17 a share, excluding charges, a year earlier.

That would be a marked turnabout. The Hingham, Mass., company entered the recession in a precarious state. It was hundreds of millions of dollars in debt, largely the result of overpaying for retailer J. Jill. Sales of Talbots' staid merchandise, already declining, soon deteriorated further. Then, amid the economic turmoil, its majority shareholder and main provider of credit, Aeon Co., told executives it wanted to divest itself of its Talbots stake.

A creative deal, which closed last week, has eliminated much of Talbots' debt. Now, the retailer says it has the liquidity to reinvest in its business and plans to remodel some of its stores in the next few years.

"It was a serious situation," Chief Executive Trudy Sullivan said of the company's formerly debt-laden balance sheet. "The culmination of this transaction gives us the financial wherewithal to continue to push hard on the turnaround of Talbots."

Talbots

Talbots, known for classic apparel targeted at the middle- and upper-class suburban set, still has work to do. Its image had gotten so old that in a customer survey a couple of years ago, women 65 years of age and older said the brand was for "someone older," says Ms. Sullivan.

Ms. Sullivan is attempting to refocus on women 35 and older. Making a brand younger is notoriously tricky: Talbots must make its clothes more youthful without alienating its core customers during the transition, and it has to persuade a new swath of women in their 30s and 40s to consider shopping there.

"Talbots not only needs to get its core customer spending more, it also needs to get a new customer," said Roxanne Meyer, executive director of specialty retail at UBS Investment Research.

Ms. Sullivan, who joined the company in autumn 2007, introduced some younger items, including slim jackets and feminine dresses. But as new products began to hit stores in late 2008, the recession crushed consumer spending. Sales fell to $1.5 billion in the year ended Jan. 31, 2009, down 12% from the year before.

The company began 2009 with an aggressive $150 million expense-reduction plan. It cut its head count 40%, reduced some employees' hours and slashed inventory. Last summer, it sold J. Jill to a private-equity firm for $75 million, far below the $517 million it paid in early 2006.

But the company's liquidity problems continued. The Japanese retailer Aeon, then Talbots' majority shareholder, stepped in several times to help, including extending a $200 million loan facility in February 2009.

But after more than two decades with Talbots, Aeon also began to express its desire to divest itself of its interest in the retailer and focus on its Japanese operations.

To repay the $486.5 million that it owed Aeon, Talbots executives turned to BPW Acquisition Corp, a special-purpose acquisition company with which Talbots had shared a financial adviser. BPW was created as a shell company, and it raised $350 million through an initial public offering in February 2008 with the intent to acquire or merge with another company.

With its two-year charter nearing an end, BPW agreed to be acquired by Talbots in December. The retailer issued roughly 42 million additional shares for the transaction, but the net dilution was only about 12 million shares because Aeon agreed to retire its roughly 30 million shares in exchange for one million warrants.

Talbots

Talbots absorbed BPW's funds and applied that money, which, minus fees, totaled roughly $330 million, to pay down its debt. The acquisition of BPW also opened up a line of credit from GE Capital for $200 million, of which it has drawn $125 million. (The outstanding balance of the debt to Aeon was paid with cash on hand.)

Ms. Sullivan called the deal "a dream transaction," and it was well received by Wall Street. Since plans for it were announced in early December, shares have more than doubled, closing at $14.35 on Friday.

Talbots has stepped up its fashion quotient, with offerings that include a sequin-trimmed sweater and leopard-print-lined black booties. So far, it has had some hits and misses. Last spring, "ethnic" prints in bright colors including orange and lime green misfired.

But this fall, a "pant fit initiative" gave customers a $5 gift card for trying on a pair from its new pants styles. The retailer sold 590,000 pairs in nine weeks. And First Lady Michelle Obama has been spotted numerous times in Talbots clothing, including a black-and-white blouse last week.

COMMENTARY:  Last year, at the height of the recession, I didn't give Talbot much of a chance of surviving.  Most retail analysts said that the handwriting was on the wall.

Trudy Sullivan, CEO, Talbot's has done a great job of re-inventing Talbots for a younger demographic, improved profitability, acquired BPW and used that public shells cash to payoff the debt they owed to Aeon. 

I am totally impressed with what appears to be a very successful turnaround, the new more contemporary look of the stores and merchandise.   Great job, Trudy.

Talbot's is a retailer worth tracking.

Courtesy of an article dated April 9, 2010 appearing in The Wall Street Journal