So today I got a nice little note from the guys at DFJ Mercury letting me know that they made Entrepreneur Magazine’s VC100 list of Top 100 venture capital firms for a second straight year. The guys did 4 “first time fundings” last year (Phurnace, Marval, Illumitex and Glycos Bio) which was as many as our friends to the west of us did. Congratulations to the guys for a heckuva year and continued success.

As part of the note, DFJ Mercury founder and Startup Houston supporter, Blair Garrou was quoted as saying:

“Although we appreciate the recognition, it’s not a numbers game for us. We are excited about playing our role in the Texas startup eco-system and look at every deal, one at a time. We only wish more VCs were funding seed and early-stage Texas companies.”

First of all, G-d love Blair’s humility. For those of you who have never spent quality time with him, you are missing out on his wisdom and passion for Houston’s technology eco-system. But my digression is not to lay praise on DFJ and Blair as much as broaden the discussion about the venture market’s current temperature.

Jeff Cornwall (I love this guy…it’s a forum, not a blog) addressed some interesting points that came out of a recent report from the National Venture Capital Association (NVCA). It is no secret that the IPO market has all but dried up and strategic sales will also be under pressure with expensive oil and a cheap dollar. With all of that plus global unrest shoved in our faces by the media, I can imagine startups are quaking in their boots.

Don’t.

Let me explain venture investing once again: money goes where it can earn a return high enough to compensate for the level of risk involved in the investment. Higher risks require higher potential returns. Luis Villalobos and Bill Payne, Managing Director, Angel Venture Partners wrote about this in a piece for Kauffman eVenturing:

“In a typical angel investor’s portfolio of ten investments in seed/startup companies, half the companies perish with no return to investors, and an additional three or four companies return some capital or provide a modest return on investment. Investors hope these three or four companies will at least return the capital for the entire portfolio-all ten investments. Ultimately, only one or two of ten investments will strike it big and bring virtually all of the return on investment to the portfolio.”

What this tells me is that venture investing is a numbers game and that the numbers need to be big for it to make any sense to play the game. Think about this, venture capital funds sustain themselves until the fund returns back to the limited partners (which could be 5-10 years) anywere from 1-3% in the form of a management fee. To make that number material enough for you to quit your high paying job and start a fund requires a large enough fund to keep you out of the poorhouse. So now you’ve got $100 million dollars and the average indicates that 50% or more of your bets will fail miserably. That leaves you with 30%-40% that may make the partners money back for them. Since the fund managers did not get into this crazy business to breakeven, that leaves you with 10%-20% that are potential black swans that might generate the >35% return that venture investors look for at a minimum. And don’t even get me started about dilution.

So ignore what you read…stats are not gospel. Venture capitalists need to keep laying bets all over the place just to make the returns happen. Without volume, they will succumb to the bell curve and be back looking for work in no time. And just because for 3 months out of the last 60 some odd years there were no venture backed IPOs does not harken the apocolypse. Come up with a disruptive technology or business model and funding will fall like manna from the heavens…or maybe from a guy named Blair.

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I got the horse right here
The name is Paul Revere
And here’s a guy that says that the weather’s clear
Can do, can do, this guy says the horse can do
If he says the horse can do, can do, can do.

“Fugue for Tinhorns” from Guys And Dolls

I like analogies (and music lyrics also if you can’t tell by now). People often ask me what investors look for when evaluating an investment in a startup company. Marc Andreesen identified three core elements of a startup: team, product and market. One could argue which is the most important of the three and Mr. Andreesen makes the case for market…which I somewhat agree with and will explain how momentarily.

But many would-be starter uppers seem to have a difficult time comprehending the issues with ensuring that all three core elements are focused on. So here is another way of looking at this: horse racing.

• Product - the horse is the product and is developed from a young age to compete through natural (organic growth) and artificial means (mergers and acquisitions). The owner (founder) is usually the one with the vision and keen eye (not always) who identifies the horse at a young age or acquires stud rights to a proven race horse (commercialization or technology transfer) from a quality breeder (university or research and development arm within a company).
• Team - In a race, the team is comprised of a jockey, trainers and owners (think of investors as the people in the stands placing bets on the race and not as owners…investors own to sell.) We’ve already identified the owner and the trainer is usually the second hire or partner (technologist or engineer) brought into the team. The trainer develops the horse by means mentioned above and as the horse shows promise, adds to the team to compete on a grander scale. The jockey (CEO or team leader) is either an up-and-coming talent or an experienced racer whose sole purpose is to get the most out of the horse on race day.
• Market - This is the race or season in which the horse and jockey compete. Horse racing occurs on a dirt track. Track conditions play an important part in the race as well as position, field, stakes and multiple other factors.

Here is why I agree that the market is the most important element: the best horse trained and run by the best team will lose if they run the wrong race, at the wrong time, under the wrong conditions, etc.

Skill, preparation, experience, funding are all of tantamount importance in getting up to the day of the race. You will not even be able to compete without them. That being said, once the gun sounds, luck has more to do with winning than any other factor. Investors know this (and so do the bettors…venture capitalists are the ones in the fancy hats and blazers) and can only evaluate what is known. That being said, investors like to bet where the odds allow for a big fat return.

So back to the original question: what are investors looking for?

Investors are looking to make a bet on a good horse managed by a good team to run a race with a purse big enough for him/her to make it worth there time and effort. They will evaluate the jockey’s history, trainer’s experience, strength and conditioning of the horse, conditions of the race, the odds of a win, place or show and how large the payoff will be.

If you don’t get it now…let me know and I will try another analogy.

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Houston-based startup, ForeFlight, is now available for iPhone users at the iPhone AppStore. The company was featured on TechCrunch recently as one of their favorites. We featured ForeFlight as well some time back and keep in contact with one of their founders, Tyson Weihs, a regular at our Startup Houston events. You can talk to Tyson and the entire ForeFlight team at BarCamp Houston coming up next month.

I think the application is fantastic, but don’t take my word for it…ask TRON Guy what he thinks.

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Part of the reason that we felt that this opening was different and signified that something special was happening in Houston, was the attention it drew not just from within the city, but from others outside.  Two pioneers in the CoWorking space flew in from both the west coast and the east coast to attend the opening party.  We’re talking about Tara Hunt with Citizen Space in San Francisco and Alex Hillman with Independents Hall in Philadelphia. 

Tara Hunt of Citizen Space and Alex Hillman of Independents Hall

Tara - Meeting Tara at this event was just a joy.  She carries so much genuine enthusiasm for CoWorking in general and Caroline Collective specifically that its hard not to be caught up in it.  It was Tara Hunt that infomed us that the Caroline Collective is the largest coworking space in the world based on square footage (yeah, the world) and is the first coworking space to also incorporate art space.  Overall a great interview and we look forward to hearing more great things that Tara is doing at Citizen Space.  You can also read her blog at http://www.horsepigcow.com .

Listen to the Interview with Tara Hunt

Alex - Alex Hillman also brought a lot of energy to the Caroline Collective opening.  (You can hear in my interview with him, how I mistakenly introduce him as one of the originators of the CoWorking concept ((not to be confused with Jelly)), and how he sets me straight on how Tara has pioneered the coworking space, how Independents Hall has contributed, and ultimately what he thinks Caroline Collective will mean for Houston’s Startup community).  A great interview not to be missed.  You can also read his blog at http://www.dangerouslyawesome.com/ .

Listen to the Interview with Alex Hillman

You can also see our whole set of shots of the opening party on Flickr here and all of the photos taken by a host of photographers at the event at the Caroline Collective Flickr group.

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Earlier this year, I was invited to College Station to judge an MBA Technology Transfer Challenge hosted by Texas A&M’s Center for New Ventures and Entrepreneurship. While there, I met several students who were part of an amazing project through the Mays MBA program, Aggies in Business (AiB). AiB is a corporation managed and operated entirely by students. Through AiB, students receive hands-on experience planning, leading and running a real-world, for-profit business.

“Launched in September of 2006, AiB Consulting was the first of the AiB businesses to start operations.  AiB Consulting does business consulting projects for paying clients seeking assistance.  It is run by students, including project management, company leadership, and strategic planning.  Currently, the students are primarily MBA students, but also include other graduate students, both within and outside of the business school, as well as outstanding undergraduate students.  Outstanding consultants have an opportunity to lead and manage the operations of a for-profit company.”

AiB Consulting is currently lining up projects to begin work in the fall and are targeting 8-10 projects running concurrently. Projects are billed at forty dollars per hour ($40) and typically range from 100-300 hours.

Throughout the year, AiB employees worked on projects ranging from a feasibility study to an IT needs analysis. In addition, consultants have reviewed and constructed business plans and conducted several market analysis projects. Summer employees are currently working on projects including a research study of the fuel cell market and a business plan for a company providing business education for medical professionals.

As a consultant myself, I feel that this is a steal. Getting valuable insight from outsiders is an important step in the development of your startup. Who knows, you may even find future employees through their work.

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GlobalPitch, Inc. announced today that the company has secured an initial round of funding through an agreement with members of the Houston Angel Network (HAN).

“We are pleased to accept this first round of outside investment with a solid team of investors that we view as both investors and partners in the continued growth of GlobalPitch,” Syd Kain, founder and Chief Executive Officer, said.

GlobalPitch provides job seekers the ability to create and distribute a comprehensive online profile of their background and experience. Going beyond the limits of a traditional resume, a GlobalPitch profile allows job-seekers to communicate more of who they are rather than simply what they have done.

Funds will be primarily used for further marketing and development of the Internet service.

Disclosure: Josh Tabin is an advisor to GlobalPitch through Mosaic CFO, Mr. Tabin’s financial advosry firm.

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The Houston Interactive Marketing Association (HiMA) announced September 18, 2008 as the date for the second annual Interactive Strategies Conference 2008 titled “Secrets Exposed.” Interactive marketing veterans and newcomers alike will come together at the Angelika Film Center in Houston, TX, to learn the latest developments and strategies for successful interactive marketing.

The event will kick-off with a keynote by Tara Hunt (Twitter: @missrogue), co-founder of Citizen Agency and author of “The Whuffie Factor: The 5 Keys for Maxing Social Capital and Winning with Online Communities.” As a recognized leader in building brands, relationships and communities online, Hunt brings expertise, humor and perspective on the value of relationship marketing in the ever-changing interactive space and should make for a packed event.

“I’m really looking forward to speaking at and attending Interactive Strategies. Having spent some time getting to watch the Houston interactive community grow lately, I’ve been totally blown away,” says Tara Hunt. “The community is incredibly vibrant and supportive and projects like HIMA and Caroline Collective are making huge strides in creating the type of city that will attract all sorts of creative people and projects for years to come,” continued Hunt.

This exciting, one-day conference features three educational tracks-digital media, social media and search engine optimization-with intensive sessions conducted by some of the most sought after industry pioneers and veterans who will reveal their secrets and useful techniques for successfully harnessing the power of interactive marketing.

HiMA, practicing what it preaches, will also host a Twitter meet-up in the morning and will  conclude with an onsite casual mixer. In between sessions, attendees will enjoy an unique twist in typical conference food and refreshments that will include popcorn and other concessions from the theater while they exchange notes and ideas.

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Startup Houston and the Houston Technology Center are proud to present

Start JULY off with a BANG at the Houston Startup Happy Hour!!!

Here is your chance to meet Houston’s growing network of emerging startups, entreprenuers, investors, and technology enthusiasts to share drinks, tips and beta invites. Swap business cards and war stories and learn something new about Houston’s Tech Scene!

This month we will feature a demo from one of Houston’s hottest startup companies: SnapStream Media !!

Join Us For:

• ->   Free drinks for the first 25 people
• ->   Wine-by-the-glass drink specials from 6 pm to 8 pm
• ->   Complimentary hors d’oeuvres
• ->   A live demo of SnapStream’s new TV search software!
• ->   Open mic for all startups to make announcements and provide sneak peeks of their latest sites and services
• ->  Meet Houston’s hottest innovative startups and entrepreneurs

The July Houston Startup Happy Hour features a live presentation of SnapStream’s latest release of their TV search software. SnapStream’s consumer product was showcased by Bill Gates in his keynote at the Windows XP Launch in 2001 and since then it’s received lots of industry awards and recognition, including PC Magazine Editor’s Choice. Snapstream’s newest product, SnapStream Enterprise, allows organizations to record and search within thousands of hours of TV recordings. It’s used by 1) presidential campaigns, 2) city/state/federal governments, 3) TV shows (like E!’s The Soup), 4) K-12 schools and universities, and many more. Come meet the founders and see a demo of their TV search software in action at Thursday’s Houston Startup Happy Hour!

Thanks again to SnapStream for also being the sponsor of the July Houston Startup Happy Hour!

The Tasting Room

When:
Thursday, July 3rd
6pm - 9pm

Where:
The Tasting Room @ River Oaks
2409 W. Alabama
(713) 526-2242
(Click here for map)

RSVP (here)

Meet Houston’s most innovative startups and entrepreneurs!

The Tasting Room at River Oaks has a great venue where there is room to socialize with the group, as well as areas to have side conversations. Try some great wines (and other mixed drinks) and share the latest and greatest info on yourself and your new tech venture. The wine cellar room also has a plasma screen TV and laptop that can be used to give other demos and show off your site.

For more details on this and other events…

visit the StartupHouston Tech Calendar at
http://www.startuphouston.com/calendar/
- or -
visit the Houston Technology Center calendar at
http://www.houstontech.org/en/cev/mon/

Hope to see you there!

The Startup Houston Events Team

Click Here to RSVP!

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I have been asked by many people “where do you want to live after college?”.  Houston was never really an answer.  New York? California? Colorado? I do not have a set answer but those states have always been in my mind.  Houston, however, seems to be stepping up a few notches in my book.

Today, Forbes stated in an article titled “Best Cities for Recent College Grads“:

The Class of 2008 would be smart to head to Texas.

Houston, Dallas and Austin nabbed the top three spots on our list of best cities for recent college grads. Spurred by low costs of living and booming energy and tech industries, these metro areas have a lot to offer new professionals seeking a home.

Currently, I am happy to be living in Houston!  The start-up community is rising and I am extremely glad to be apart of this community in Houston.  Keep up the good work!

What do you think of Houston?  Are you a recent college grad living in Texas?

Thanks for reading!  Thank you in advance for your comments!

This post was guest written by Cory Levy - 16 year-old entrepreneur and Startup Houston intern. Cory has joined the team during his spare time to help gather data, manage the site and, from time-to-time, guest author a post. Please welcome Cory to the fold.

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Let me begin by saying sorry for the delay in getting our coverage of the Caroline Collective opening posted, but we hope you find that the resulting interviews are worth the wait.

Now, I’m sure many of you are aware of several other Web 2.0 events that have taken place in Houston such as BarCamp, Got Social Media, Rice Alliance IT and Web 2.0 Venture Forum & StartupWeekend Houston, arranged by pioneers in the field such as Erica OGrady, Marc Nathan, & Kelsey Ruger, but Caroline Collective is a permanent installation and as of their opening party Saturday night have officially put Houston on the map when it comes to the world of Web 2.0.  Several different people noted for their leadership in the coworking space and experience with emerging Web 2.0 startups, came to Houston to celebrate the grand opening of Caroline Collective: Tara Hunt with Citizen Space, Alex Hillman with Independents Hall, and Gwen Bell most recently with TechStars.  Now, you might have read a few things about Caroline Collective (like here, here, here, & here), but what you might not have known is that the Caroline Collective is also the largest coworking space in the world based on square footage (uh huh, we said the world) and is the first coworking space to also incorporate art space, according to Tara Hunt. 

This was also an event that owed a lot of its success to new Web 2.0 apps. Solicitations for volunteers to work on the space as well as to provide donations were done via Twitter. The donations list was managed through Google Docs.

We interviewed several people who were there at the event.  Everyone from the founders (Matthew Wettergreen and Ned Dodington), to organizers and promoters (Monica Danna and Gwen Bell), to the new tenants (Erica OGrady, Tracey Lee Wallace & JJ Lassberg, Joe Litzinger , & Linda Etuk), founders and innovators of other coworking spaces (Tara Hunt and Alex Hillman), and other leaders in Houston and the surrounding area’s technology scene (Walter Ulrich and Bill Erickson) shared their thoughts on what the opening of the Caroline Collective means for Houston’s technology startup and art communities. 

This week we will be bringing you all of these great interviews in celebration of what the Caroline Collective means for Houston’s startup and art communities, starting with the interviews of Matthew Wettergreen and Ned Doddington. 

Interview with Matthew Wettergreen

Interview with Ned Dodington

Stay tuned for more interviews this week!

You can also see our whole set of shots of the opening party on Flickr here and all of the photos taken by a host of photographers at the event at the Caroline Collective Flickr group.

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