Thursday Dec 23, 2010 by David Aronoff - General Partner, Flybridge Capital Partners
This is the second part of my year end wrap up and thoughts on where the opportunities may lie for 2011. Here is a link to the first post.
Tablet Computing – It’s hard to believe that the iPad was only announced in January 2010 and released in April. In 9 short months it has become a phenomenon. As a major Apple fanboy (I “may” have a poster of Steve Jobs on my bedroom door) it’s not surprising that I see the iPad as a revolutionary device and not just because I called the name before anyone else. I am not convinced that a touch screen device will replace all needs for desktops and laptops (kinda sucks for word processing and spreadsheets). But clearly it improves many computing experiences (email, browsing, video, casual gaming) and opens up many new ones in consumer (best remote control experiences Sonos &Xfinity) and even in unexpected sectors like medicine. We’ll see the onslaught of Android-based tables and all the wannabees in a few weeks at the 2011 CES (I’ll post), but I am really encouraged by the utility. Last – confession; I drove my wife crazy in 1994 when I was convinced the to-be-released Newton would change the world. So I have to temper my rapid enthusiasm because of spousal long-term memory.
Return of Capital Intensity (With a Twist) - Many times I have written and spoken of the death of venture-backed capital intensive startups that would need to consume upwards of $50m in capital just to build a first product. There was a brief moment where such speculative (largely telecom equipment and semiconductor) deals were viable and I was incredibly fortunate to have made a few successful investments. But over the past decade exceptions like Starent and ACME Packet proved this rule and too often the results were deep holes in the ground. Many others agreed with my posture and it became nearly impossible to start such companies under the old paradigm of multiple large VC rounds at escalating valuations. Beginning in 2009 and getting stronger this year, a resurgence of big-iron deals has emerged. But they’ve reappeared to fill the vacuum of innovation in segments left untouched by startups and incumbents alike for the last 10-12 years, like carrier network equipment and next generation microprocessors. And they have reappeared with very novel approaches to solve the mystery of financing big capital needs.
Most of these companies are still in development and/or stealth mode; one I can mention is Calxeda F/K/A Smoothstone, in which I invested this past summer. Calxeda is building a highly integrated Server‐on‐Chip around a new generation ARM processor. To address the capital intensity of this project, we created a six-firm syndicate that committed $48m up front - the total capital needed to take Calxeda to market. While I don’t expect we’ll be making a number of investments like Calxeda, the ability to back a great team taking on a massive opportunity, was intoxicating. And the a priori full-syndicate financing a very unique chance to soberly structure the investment. I have seen a couple of other great teams taking on big-iron projects, with creative plans and look forward to more.
Next Gen Video - The market for video-over-the-Internet is red hot (witness the steep ascent of Netflix’s “Watch Instantly” streaming service reportedly consuming 20% of downstream Internet bandwidth) and the onslaught of OTT competitors like Google TV, Apple TV, Roku and Boxee, to name only a few. Consumption of bandwidth for OTT video has likewise exploded - a recent study found that 20 percent of all the bandwidth used up on the Internet during after-dinner hours is devoted to streaming Netflix movies. And a much-cited impetus for the upgrade to 4G / LTE infrastructure is to support the transport of OTT video to portable devices. Traditional players like Verizon and Comcast are not ignoring this sea-change, actively investing in new technologies like Comcast’s Xfinity iPad app to control their DVRs. The year in video was not without its disappointments, as despite great ballyhoo at the 2010 CES, 3DTV and Internet-enabled TVs have not yet lived up to their hype.
I have been actively investing in the evolution of video, with two portfolio companies to date – Immedia and Blackwave. Immedia is developing new scalable video encoding technology for the Internet and mobile networks. Blackwave developed a revolutionary low-cost/high-performance storage and server platform for IP video and was sold to Juniper Networks a few weeks ago. (A special thanks to Bill Rich and the team at Bowen Advisors who helped make the marriage happen - they proved to be great counsel and I highly recommend them).
Despite the fits and starts, I believe the market for next gen video is still in the first innings and the battle for the living room will heat up in 2011. So I am still looking actively.
2010 was clearly a weird year. With so many bumps, ups and downs, it was important to maintain composure – as I suspect it will in 2011. But there remains a great and increasing wealth of entrepreneurship and opportunity. My partner Jeff Bussgang believes we’ve entered a golden age of entrepreneurship, and I agree completely.
So, sayonara 2010 thanks for the excitment and bumps. And hello to the new year.
David Aronoff is a General Partner with Flybridge Capital Partners. You can find this post, as well as additional content on his blog called Diary of a Geek VC. You can also follow David (@dba) on Twitter by clicking here.