The regular monthly meeting of the Venture Association New Jersey (www.vanj.com) was held on Tuesday, January 15, at the Hanover Marriott, Whippany, NJ. The featured speaker was Larry Bettino, General Partner, Starvest Partners (www.starvestpartners.com). His topic was, “Investing in Business-to-Business (B-to-B) Startup Companies is Back In Style.”
Bettino began his presentation with some facts about Starvest Partners. Established in 1998, the company invests in technology-enabled providers of business services such as Software-as-a-Service (SaaS), security and compliance, internet marketing, data/information-based services and eCommerce. “Investing nationwide, but only in expansion stage companies with between $2 million and $20 million in revenue, we will consider only investments where we can add value,” Bettino told the audience.
“Investments in Business-to-Consumer (B-to-C) ventures has grown steadily since 2005, climbing rapidly since third quarter 2010, while investment in B-to-B fell out of favor,” Bettino continued. “The recent rapid rise has been due to speculation in companies like Facebook, Groupon, Zynga and Pandora.”
There are a number of reasons why B-to-C investments can be attractive, according to Bettino, including:
· They require only a small upfront development investment.
· Consumers are willing to try new things.
· They can generate many users quickly (going viral).
· They can generate initial revenue quickly.
· Rapid valuation increases are possible.
However, there are also a number of reasons why they can be unattractive, including:
· Attracting consumers can be unpredictable
o 4Square required 13 months to acquire 1 million users.
o eBay required 24 months to acquire 1 million users.
o AOL required 66 months to acquire 1 million users.
· Monetization can be difficult.
o Google generates only $24.00 per user.
o Facebook generates only $4.00 per user.
· Consumers can be fickle.
o OMG POP generated 36 million users in less than 1 month but is now almost extinct.
· Rapid valuation decreases are possible.
o Stock prices of Facebook, Groupon, Zynga and Pandora all declined rapidly after IPO.
B-to-B investments, on the other hand, offer a number of attractions with considerably less downside risk, including:
· Acquiring B-to-B users is formulaic and relatively predictable.
· Buyers are driven by economics (ROI), not by fads.
· Happy customers are loyal (low churn).
· SaaS economic model is gaining greater traction.
· Many B-to-B platforms are becoming attractive to consumers.
· Valuations/Outcomes can be excellent
o Stock prices of NetSuite, WorkDay, Splunk and ServiceNow all increased rapidly after IPO.
Bettino’s PowerPoint presentation is available on the VANJ website at www.vanj.com/archive2013.html.
Next Meeting February 19
The next scheduled VANJ meeting will be held on Tuesday, February 19. The featured speaker will be Gil Beyda, Founder and Managing Partner, Genacast Ventures (www.genacast.com). His topic will be, “Eight Keys to Yes: The 8 Questions You Need to Answer to Get Me to Write a Check.” Advance reservations can be made by calling Clara Stricchiola at (973) 631-5680, faxing (973) 984-9634 or e-mailing firstname.lastname@example.org and mailing a check ($35 for members, $55 for non-members) to VANJ, 26 Main Street, Chatham, NJ 07928-2402. Registration at the door is $75 after 12:00 Noon on Monday, January 14.