Benjamin Kuo’s Blog

It looks like this week is shaping up to be a fairly busy week for startups. StartupSquad points out this afternoon that Headplay, a Santa Monica-based startup developing personal cinema systems, unveiled its new web site this weekend, detailing more of its product. The firm has developed a personal video display headsets that can plug into any video source, such as an iPod or video game console–and provides the display equivalent of a 52-inch screen. The company has been fairly well covered by the electronics enthusiast media.

Valleywag, which covers Silicon Valley rumors and juicy gossip, reports that Jason Calacanis has started a new firm in Santa Monica, funded by Sequoia Capital. Calacanis was behind Weblogs, which he sold in 2005 for $25M to AOL. Calacanis–not a stranger to controversy–has been getting lots of blogosphere attention lately for his refusal to do a phone interview with Wired magazine.

Update: Jason Calacanis has replied to this blog post, saying that the information from Valleywag is 100% false.

Online advertising seems to be in the midst of a merger and acquisition frenzy, as Yahoo said last night that it has purchased Right Media for $680M, an online advertising firm, shortly after Google acquired DoubleClick earlier in the month for a hefty $3.1B. The two acquisitions come as there has been widespread speculation that Westlake Village-based ValueClick may be for sale. ValueClick itself is no stranger to the M&A arena, having acquired Fastclick, Commission Junction, E-Babylon, Pricerunner, Webclients.net, HiSpeed Media, Search123, BeFree, ZMedia, ClickAgents, and onResponse.

Matt Marshall of VentureBeat, took note of Southern California’s rise in venture capital activity yesterday in a post on his venture-focused publication for Silicon Valley. Marshall (formerly of the San Jose Mercury News) is closely followed by venture capitalists in the Bay Area for his commentary on the market.

PricewaterhouseCoopers and the NVCA have confirmed: Southern California also ranks #2 in the quarterly Moneytree venture capital survey. Dan Primack at Thomson (the firm behind the numbers) recently posted a spreadsheet with the total deals per state, showing that Southern California was number 2 in the nation, with 1.221 billion in deals this quarter. Two big deals bumped up the total: CardioNet and Amp’d Mobile.

Interestingly enough, although New England trailed (with 984M in investment), there were more deals done there in the quarter (98 vs. 85).

Ernst & Young and VentureOne announced today that Southern California had $1.1B in venture capital deals in Q1, confirming the earlier numbers we reported at the beginning of the quarter. Among the more notable items from this morning’s report: this is the first time Southern California has topped $1B in investments since 2000; and this is the third quarter we’ve beat New England. PricewaterhouseCoopers releases their MoneyTree report tomorrow, which should show similar results.

Some other notes:

• The Bay Area saw $2.0B in deals, making Southern California around half the size of Silicon Valley in terms of dollars
• Southern California represented roughly 16% of the total nationwide dollars invested for the quarter
• California as a whole represented 44% of deal flow, and 48% of the capital invested

There’s a strange thing I’ve been seeing in the last few months, which is finding out the number of technology industry executives at notable Silicon Valley or other technology firms, moving into, or who live in the Los Angeles area. This week, the LA Times reported that Jeff Bezos (founder of Amazon.com) has apparently purchased a home in Beverly Hills. I’ve run into Richard Wolpert, former Chief Strategy Officer of RealNetworks, and now asssociated with venture firm Accel Partners, several times in Los Angeles–he lives in Westlake Village. Elon Musk, founder of PayPal and currently chairman of Tesla Motors and SolarCity (two Silicon Valley startups), lives in Bel Air. Another ex-Paypal exec, David O. Sacks, runs Geni.com (a Los Angeles startup) and lives in Beverly Hills. And I’ve mentioned before how embattled Yahoo CEO Terry Semel commutes from Bel Air every week to Yahoo headquarters in Silicon Valley.

Is there anyone else out there I’m missing?

Update: At one point, Michael Arrington of TechCrunch was living in Newport Beach, I don’t know if he’s still there (though if you check the web registration information for Techcrunch.com, it’s still Arrington’s apartment in Manhattan Beach…).

It’s interesting to see how rapidly Web 2.0 companies and ideas can become a commodity nowadays. Take social news, the market which is best defined by the social news site Digg, where anyone can post a news item and users get to vote (thumbs up or thumbs down) on if a news item is worth reading. Just yesterday MySpace launched its version of a social news site, just the latest in a stream of firms who have added “digg” style news ranking to their pages. Among similar services are Netscape, Reddit, and Newsvine, along with literally dozens of clones of Digg.

Interested in putting up your own social news site? Just download Pligg, which allows you to instantly put up a Digg-style social news site today. Or download diggClone. Or maybe you just want a Spanish style Digg site–try Meneame. Think you’ve got an original idea for a “Digg” style site? You might want to check this list of 415+ “Digg-style” applications.

It’s gotten to the point where social voting on articles is just a feature people add to promote their web sites–for example, Language Weaver, a Marina Del Rey-based firm providing language translation software, just announced Kontrib.com, which uses their software to provide a multilingual Digg-style social news site. Clearly their business is selling translation software, a Digg clone is just a great way for them to get some attention and to demonstrate their capabilities.

Need another example? There’s been a lot of attention to social surfing from firms like StumbleUpon recently, which allows people to share the web sites they are visiting, due to rumors of an acquisition by eBay.  There are a number of competitors, like Me.dium and Trailfire, and Google just launched their own version of this as a feature of the Google Toolbar–probably a trivial weekend project for one of the firm’s many Ph.D. computer scientists.

With the commoditization of the software behind Web 2.0 occuring so rapidly, it seems to me that this market is becoming almost like the soft drink or bottled water market — a matter of branding and marketing. In that market, the entire back end of the operation is pretty much the same from company to company, but the driving force is how well a company can make their product attractive to consumers. The same goes for Web 2.0 companies now–this isn’t a technology game, it’s purely a matter of adoption, branding, and marketing your “brand” of a Web 2.0 company.

One of the key factors of venture capitalist interest in a company, is the simple factor: does a VC actually have money in the bank?

Yes—most entrepreneurs I speak to seem to think all venture capitalists are made out of money–but surprisingly, not all of them realize that the other half of the job of being a venture capitalist is out asking for money to manage, from Limited Partners (LPs). Those LPs, typically large institutional investors, pension funds, and University endowments, a use venture capital as one way to boost their returns and as a small portion of their asset allocation.

The ebb and flow of venture capital investments is closely linked with the fundraising efforts of venture capital firms–and the interest of a venture capitalist in your firm is directly linked to how much capital they have to deploy.

For example, if you approach a venture capital fund which is at the tail end of a fund, you’re going to find they are extremely selective–even if you’ve got an outstanding company and you fit their profile perfectly. The reason why is they just don’t have dollars in the bank to make sure you’re successful, and they’re likely reserving some capital for followon funding for their current portfolio firms. On the other hand, a fund which has just raised millions might be more eager to deploy that capital, and be willing to move faster to get a deal done.

A fundraising cycle for a venture capital firm is typically around three years, so you can get a sense for where they are if they have been announcing their new funds. Also, most venture capitalists are pretty open to letting you know if they are or aren’t making investments if you ask them.

There’s interesting news out of one of the local high tech organizations serving the area today. Entretech, an economic development effort closely tied to Caltech, has added board members out of USC and UCLA. Krisztina Holly, who is Vice Provost and Executive Director of the new USC Stevens Institute for Innovation, and Kathryn Atchison, Vice Provost of Intellectual Property and Industry Relations, and Associate Vice Chancellor for Research at UCLA, have both joined the board of the group.

The move is interesting because, traditionally there has not been a lot of collaboration between local universities in the region to focus on bolstering the technology industry and outreach to the local technology community. Universities, while they are often identified as being a key part of making any area a center of technology startup activity, rarely reach out to industry, and even if they do infrequently collaborate with other local schools.

The three-way collaboration between USC, UCLA, and Caltech is part of a push by Entretech to extend beyond its original roots in the Pasadena/San Gabriel Valley area and into the Greater Los Angeles area.

Prior coverage:

• Interview with Stephanie Yanchinski, Pasadena Entretec
• Interview with Krisztina Holly, USC Stevens Institute
• Awards Season: Entretech Names Finalists