Global Startup Blog : Startup Lawyer & Attorney : Reed Smith Law Firm : Corporate Law, Venture Capital

After a multi-week hiatus due to the holidays and, of course, the ever-present demands of deal making as the year comes to a close, Friday Five is back to highlight a few of the top stories from the week. 

• A group of hackers commandeered Twitter's DNS for about an hour on Thursday night, directing traffic to their own webpage.  According to the social media giant, its website and micro-blogging that plugged into Twitter's API were not affected.  This is the second time in less than six months that Twitter fell victim to a DNS attack, though it is the first time that a "Cyber Army" took credit for the fiasco.  What is a "Cyber Army" anyway?  Do they attend boot camp, wear uniforms and otherwise follow unquestioned orders from superiors?  I digress. 

• Earlier this week, the National Venture Capital Association released its yearly Venture View Survey.  The survey polled more than 325 venture capitalists across the country, and the results were as expected with the industry professionals remaining somewhat bullish about the short-term future.  63% expected the total dollars invested in 2010 to stay the same or increase.  50% predicted an increase in the number of companies receiving funding.  The survey pointed to clean technology and Internet as the industries best positioned for higher investment levels in 2010.  Asia will continue to be a growing focus for investment dollars.  74% predicted an improved IPO market.  And the overwhelming majority predicted that funds raised in 2010 will be smaller than previous funds and the overall number of funds would decline over the next five years.

• Regado Biosciences yesterday closed its Series D financing, raising $40 million from an investor syndicate led by LCF Rothschild Group that also included existing investors Domain Associates, Quaker Bioventures, Aurora Funds and Caxton Advantage Life Sciences Fund.  The New Jersey-based company is developing antithrombotic therapeutic aptamers with active control agents.  Regado's successful raise is a nice feel-good moment for emerging companies in light of the continued talk of general venture capital industry contraction.

• Russian investment firm Digital Sky Technologies is leading a group that is buying a $180 million stake in Zynga, a social gaming company that produces popular online games such as Mafia Wars.  The deal comes off the heels of DST's $200 million investment in Facebook.  DST is certainly making a major bet on the social media space with those two deals.

• The Wall Street Journal's Venture Capital Dispatch contains an interesting blog post titled "Exit Conundrum: Wait For An IPO Rebound Or Sell To An Acquirer?"  that focuses on Acclarent's $785 million sale to Johnson & Johnson.  Until the IPO markets come roaring back, which may be quite some time, it seems likely that many companies will opt to go the safer route chosen by Acclarent.

That is all for now.  We won't have the same radio silence over the next few weeks that we did in late November.  Enjoy your weekend!

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Reed Smith's Corporate Media and Technology group held an interactive breakfast panel discussion regarding the valuation of media and technology companies in today's challenging business environment. Attendees included executives from a range of high profile companies in the media, technology and investment industries. The panel featured leading individuals from the media, investment banking and financial services sectors who shared their insights into various aspects of factors affecting the valuation of media and tech companies in the current environment, while also discussing current trends and future outlooks for what looks set to be an uncertain marketplace going into 2010.

Key features of the discussion included:

• Positive signs - increased activity in many sectors in Q3 2009 regarding potential transactions
• Difficulty in accurately valuing companies in the current conditions
• Managing the contrasting opinions of owners and potential buyers regarding valuations
• The sectors most likely to see an upturn first in 2010

The panel members were:

Chris Whiteley - Ingenious Media, Robert Lees - Strata Partners, Chris West - Deloitte. The discussion was chaired by David Boutcher - Reed Smith.

The attached slides provide an outline of the key discussion topics.

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OK.  You caught me.  I'm not that clever.  It's not my title.  Our Advertising, Technology and Media group pens a very informative and entertaining blog -- LegalBytes -- that first used that title, so I have shamelessly plagiarized it.  I did, however, attend the social media presentation in Palo Alto on Tuesday, and it was a resounding success.  Joe Rosenbaum and Anthony Traymore filled their allotted 90 minutes with extremely useful, interesting and entertaining information for relating to the impact of social media on a company's brand.  That can be of particular relevant to emerging companies, since their tech savvy founders and employees.  The power of a tweet, Facebook page, etc. is a bit overwhelming when one really sits down an thinks about it.  United Airlines certainly learned that fact the hard way after an its baggage handlers damaged musician Dave Carroll's guitar--a quick Google search will give you some background.  Joe and Anthony discussed that case study and more during their presentation, as well as giving companies effective steps to deal with the phenomenon known as social media.  The presentation (It's 10pm: Do you know where your brand is?) goes hand in hand with the white paper on social media that we published on this blog a few weeks ago. 

Enjoy the presentation and, if it hits home with you, to steal from Joe's blog post one more time: 

If you are interested, please contact me (Joseph I. Rosenbaum) and we can work with you to help you engage us in your social media conversation with topics that are relevant to you. We will also be updating the research work already released in our Social Media White Paper with some of the materials and further work we continue to do in this area. Stay tuned – social media is not a fad.

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In a continued run of positive news for the emerging company, venture capital industry over the last few weeks, Norwest Venture Partners just announced that it closed a $1.2 billion fund  to invest globally in private companies across a number of industry sectors.  Norwest's new fund is particularly impressive considering that the entire venture capital community only raised $1.7 billion in new or follow-on funds in the third quarter of 2009, according to the National Venture Capital Association and Thomson Reuters.  The Q3 results marked the second consecutive quarterly decline in terms of the total number of venture funds raising capital and aggregate dollars raised by those funds.

We obviously don't want to get ahead of ourselves with optimism.  A few lucrative exits and a massive raise by a Silicon Valley stalwart doesn't necessarily mean that the industry is poised for a turnaround.  It is certainly the case that the two are not related, as Norwest has likely been working on this raise for months.  Yet, the timing couldn't be better, in my opinion, because it feels like momentum is beginning to swell.  The emerging company, venture capital industry is very circular in nature. Increased exit opportunities enable funds to raise additional capital from existing and new limited partners.  As those cash coffers grow, more and more private companies receive funding, which will help the newly funded companies grow into attractive exit candidates.  Wash, rinse, repeat.

Are we in the midst of a turnaround?  We'll all know soon enough.

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Last Thursday, Reed Smith and Boyden Executive Search Agencies co-sponsored a well attended seminar in our New York offices where Douglas J. Wood, head of Reed Smith’s Media & Entertainment Industry Group, Sarah Needleman from The Wall Street Journal, and Kathy Ewing, assistant general counsel at Benjamin Moore, discussed the legal, social and economic implications of the social media and social networking revolution. 

If you missed the event, don't fret.  We have three MCLE-friendly seminars planned in our California offices on December 8th and 9th (details below) to discuss an industry-leading white paper that we just released entitled: Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon. The white paper, which includes contributions form our social media task force consisting of Reed Smith lawyers across many disciplines affected by or involved in the social media revolution, is an interdisciplinary piece that explores the compliance and litigation risks of social media from a broad spectrum of topics, including advertising, data privacy, employment, government contracts, product liability and securities.  This is a must read for anyone working in (or merely intrigued by) the world of social media.

As mentioned, we will be hosting a seminar entitled: It's 10:00p.m., Do You Know Where Your Brand Is? The discussion will include:

• Best practices for corporate engagement in social media;
• How to approach workplace policies;
• The current and potential legal landscape evolving around social media platforms;
• Case studies -- social media successes and failures;
• Highlights of Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon; and much more.

Joe Rosenbaum and Anthony Traymore will be speaking at the seminar, and for those with law degrees looking to satisfy their mandatory continuing legal education requirements, you will receive MCLE credit.  The times and dates of the seminar are as follows:

Session I

• Tuesday, December 8, 2009
• Breakfast / Registration: 8:30am - 9:00am (yes, free food); Program: 9:00am - 10:30am
• Reed Smith's San Francisco Office:  101 Second Street, 18th Floor, San Francisco

Session 2

• Tuesday, December 8, 2009
• Lunch / Registration: 12:30pm - 1:00pm (yes, free food); Program: 1:00pm - 2:30pm
• Reed Smith's Silicon Valley Office:  1510 Page Mill Road, Suite 110, Palo Alto

Session 3

• Wednesday, December 9, 2009
• Breakfast / Registration:  8:30am - 9:00am (again, free food); Program: 9:00am - 10:30am
• Reed Smith's Century City Office:  1901 Avenue of the Stars, Suite 700, Los Angeles

Feel free to email me if you would like to be included on the event's email invitation list.

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It's Friday the 13th, so horror film aficionados and those deeply consumed with urban lore are probably champing at the bit to leave the office and begin their evening, whether at home or out on the town.  I considered tossing in a headline or two about Jason Voorhees in this week's Friday Five, but for now at least, I'll resist that temptation.

• While fictional murderers won't take up any more space on this blog entry, another Friday topic of regular interest, beer, will take center stage.  BusinessWeek penned an interesting article on Castle Harlan's $655 acquisition of United Malt Holdings, resulting in an 80% internal rate of return on CH's $90.5 million equity investment.  An interesting statistic from the piece is the fact that the sales of microbrews in the US increased 9% in the first half of 2009, following a 6.3% increase in 2008.  It appears that high-end beer may be the one market that was immune to the recent recession.

• Social gaming continues to be the buzz this week.  We previously blogged about EA's acquisition of PlayFish.  Since that time, Playdom announced that it raised $43 million on a $260 million pre-money valuation from an investor syndicate that included NEA, Norwest and Lightspeed.  And now another social gaming company is jumping on the good news train with the yesterday's announcement that Wooga closed on a $7.5 million round from Balderton Capital.

• Global Entrepreneurs Week kicks off on Monday, November 16, and runs for the balance of the week.  I'm not exactly sure what the events of the week will entail, though those interested can register at the host website.

• BusinessWeek gets two entries in this week's headlines with an interesting article on how the tough economic conditions of the recession should provide for fertile grounds for new startups.  There is certainly makes sense that tough economic conditions create a Darwinian atmosphere for startups, which forces some entrepreneurs to focus on profitability very early in the game.  In terms of short-term exits, though, it seems more plausible that boom times create far greater opportunities for all startups, whether elite or run of the mill.  Then again, I'm a corporate attorney, not a market analyst, so take that comment with the appropriate grain (or tablespoon) of salt.

• Quick M&A hits:  HP announced its intention to acquire 3Com for $2.7 billion in cash.  Google confirms its acquisition of Gizmo5.  Logitech to buy LifeSize for $450 million.  Are you starting to feel the warmth emanating from the rapidly heating acquisition market?  I'm certainly tossing out my hand warmers for the time being.

Have a great weekend!

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For the first time in nearly a year, the venture capital industry showed a positive return, according to Cambridge Associates, LLC.  The Cambridge US Venture Capital Index returned 0.2% for the three-month period ended June 30, 2009, ending three consecutive quarters of negative returns.  Of course, in an economy still clouded in doubt and pessimism, the positive news was paired with a cautionary outlook.  Managing Director Peter Mooradian raised questions about whether the asset class can generate sufficient exits to provide healthy long-term returns. 

It will be interesting to see the figures for the current quarter after Google's recent acquisition of AdMob for $750 million and EA's recent acquisition of PlayFish for $300 million (with an additional $100 million in earnouts).   

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Google recently announced its acquisition of AdMob, self described as the "world’s largest mobile advertising marketplace, offering solutions for discovery, branding and monetization on the mobile web less than three years the company was founded.  The purchase price was $750 million, making it the third largest acquisition in Google's history, behind only DoubleClick ($3.1 billion) and YouTube ($1.65 billion), according to TechCrunch.  Sequoia and Accel were early investors in AdMob, so one must assume that they enjoyed tremendous returns with this quick-hit investment. 

AdMob's reported $100 million revenue run rate certainly made it a standout among its startup peers who were founded in the last three or so years, thus is difficult to say whether this extremely lucrative deal was a unique set of circumstances or a positive sign of things to come in the world of technology startup exits.  Whatever the case, the deal has to serve as a shot of adrenaline for technology entrepreneurs around the globe.

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We are adding a new feature to the blog.  Each Friday, we will link to the top five headlines for global entrepreneurs.  Of course, the bulk of those will often involve Silicon Valley, since that tech-concentrated center remains the global front line of technology and venture capital.  Enough intro banter.  Let's jump right into it.

• Talk about a long time in the making.  On Wednesday, Ancestry.com, a website that allows people to trace their roots by searching online documents, priced its IPO of 7.4 million shares at $13.50.  By my math, that will bring in approximately $100 million in aggregate gross proceeds, assuming that the round is fully subscribed.  It took Ancestry.com a scant 26 years from the time it was founded until it priced its IPO, making it the oldest venture-backed IPO of 2009.  Talk about patience and perseverance!  Read more.

• Who said that it was next to impossible for venture capitalists to raise additional funds in this economy?  Greylock Partners obviously missed that memo, as the Silicon Valley stalwart recently announced the closing of Greylock XIII, a $575 million fund.  They also announced the addition of Reid Hoffman, co-founder and current Executive Chairman of LinkedIn, as a new investing partner.  Read more.

• I wonder what ridiculously expensive champagne former British investment bankers Eldar and Roy Tuvey will be drinking in celebration this weekend after selling their company, ScanSafe, to Cisco for up to $183 million earlier this week?  The founders are set to spit up to a cool $60 million between them.  With an exit like that, they can afford to take a bath--literally--in 1990 Louis Roederer Cristal Brut, which is priced around $2,500 per bottle.  The exit was also a good win for London-based venture capital fund Balderton Capital.  Yahoo Finance estimates that Balderton enjoyed a four times return on its four rounds of investment in ScanSafe.  Not bad, indeed.  Read more.

• The government of the People's Republic of China doesn't seem squeamish about the future of its venture capital market.  China's key economic planning body recently launched 20 venture capital funds to develop China's growing technology sector.  Read more.  That news certainly seems to support estimates that China's private equity industry will grow by ten-fold over the next five years.  Read more.  Yes, I know that is two headlines combined into one, but who is truly counting anyway?

• When Google head honcho Eric Schmidt talks, people tend to listen.  When he talks about his view of the employment trends in Silicon Valley's technology sector, even more people turn an inquisitive ear or two.  Read more.

Enjoy your weekend!

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