To cheer themselves up in these dark times, Silicon Valley’s venture capitalists have taken to drawing comparisons with tech’s pre-bubble days. If investment activity has returned to levels seen in the mid-1990s, the argument goes, this at least represents a healthy baseline: it is the “new normal” from which things start to pick up again.

So they should get a kick out of the latest figures from the National Venture Capital Association. Based on the $3.7bn put to work in the second quarter (up a little from the first quarter, but down by more than 50 per cent from a year ago), the total invested this year is projected to reach 1996-1997 levels. Of course, back then the VC industry provided a living for far fewer people. The shake-out has barely started.

Twitter’s usage has been soaring into the stratosphere of late; now its finances are receiving a similar boost.

The microblogging service announced on Friday it had closed a funding round led by A-list VC firms Benchmark Capital and Institutional Venture Partners.

The figure is $35m, but there is no official word on what valuation that gives the company. Continue reading "Twitter gets $35m from VC big hitters"

Is this the best time there’s ever been to be a start-up? Or does the current banking crisis signal the death of American-style risk-taking for new businesses seeking funding? Each view was espoused by two serial tech entrepreneurs at Seedcamp, the tech start-up conference in London.

Brent Hoberman, founder of Lastminute.com and latterly Mydeco, a furniture site, was resolutely optimistic.

“For people who can raise money, it’s the greatest opportunity there’s ever been, because the differential is so much larger,” he said. “The big corporates will retrench a bit – they will reject all innovation and all innovative ideas. So if start-ups can be innovative, their role is even more important.”

But Martin Varsavsky, the Argentinian telecoms entrepreneur behind Viatel and latterly Fon, a wifi-sharing community, was as despondent as Mr Hoberman was enthusiastic. “I’m really sorry that the group of people most likely to finance whatever we were going to do are in such deep shit.”

The US had already lost its leadership in electronics and cars, he said. “In the last few days I think America lost the leadership in banking. It’s a pity because American investment banks had the best personality vis-à-vis guys like us,” he told an audience of entrepreneurs.

“I’m shocked by the developments of the last few days and especially shocked because they started in America,” Mr Varasavsky continued. “It’s US people who over-borrowed and caused enormous grief to themselves, to the point where I believe the future of financing will never be the same.”

Mr Hoberman advised Seedcamp’s 23 start-ups, who are pitching for up to €50,000 in angel funding, to take a two-year view, and raise more money than they needed if possible. “Assume these two years are going to be pretty miserable from the revenue side, but if you can get through that, you will have a two- to three-year lead over traditional players.”

But Mr Varsavsky said the sudden consolidation in the banking sector was bad news for start-ups seeking funding. “The larger the bank gets, the less interested they are in getting involved in companies like us.”

“European VCs are still sitting on a lot of cash,” countered Mr Hoberman. “Most of them are still going to want to put that to work. They will be tighter on valuation. The risk is higher. But that doesn’t mean it’s going to be impossible to raise money.”

The even-more-lucky recipients of Seedcamp’s funds will be announced on Friday.

Yell investors, who have seen their shares fall from over 400p to less than 100p so far this year, may take some convincing that there is still value in the Yellow Pages market as it moves online.

But Pelle Tornberg, the former chief executive of Metro International, the freesheet empire, has always harboured ambitions to sneak into the yellow pages market, and the rise of disruptive online-only sites such as Qype have given him an opening.

Qype collects data and reviews from its users for everything from restaurants and hairdressers to plumbers and legal services. It is one of many online services which are having a field day as Yell struggles to move its print dominance online. Rivals include TrustedPlaces in the UK and Yelp in the US.

Mr Tornberg said he “begged” Qype to let him onto the board because “it is one of the few sites that has come up with an idea to modernize the yellow pages business”. It is also a “proven success”, with 5.1m unique monthly users across Europe.

“I was impressed by the management team,” he told the FT. “They have started the way you should do with low costs, and taken it step by step. Also compared to a number of other services they are one of the few businesses where user-generated content makes sense.”

Qype’s reviews pull in search traffic that individual plumbers’ or restaurants’ sites lack the scale to achieve by themselves. “User generated content really adds quality to the product,” said Mr Tornberg.

Qype has also raised €8m in a second round of financing led by Wellington Partners, new investors who are putting partner Eric Archambeau on the board. Existing backers Advent Venture Partners and Partech International also topped up, bringing its total funding to €13m.

It began in Germany in 2005, opening UK and French domains in the past year, and claims over 5.1m monthly unique users across the group. The funds will help it expand into more countries, according to Frederic Court of Advent. “It’s not by coincidence we hired Pelle – one of the few people who have a track record at internationalising media businesses,” he told the FT. Southern Europe is targeted by the end of this year, while Eastern Europe and Russia are slated for 2009. The funds will also help hire more sales people.

Stephan Uhrenbacher, Qype’s founder, told the FT when he visited London last month that local businesses still aren’t at a stage where they come to the web to buy ads themselves, hence Qype’s need for telesales. Even though traditional yellow-pages services have larger sales resources, they have lower traffic, he said. While Google is a competitor, Mr Uhrenbacher is confident Qype has a stronger community. “The community is the barrier to entry that all the yellow pages people face.”

The biggest deal in user-generated reviews was Microsoft’s acquisition of Ciao, which uses the content to drive search traffic to its price comparison service, rather than charging businesses for ads like Qype. Closer to Qype’s market, March saw Gcap, the radio group, take a majority stake in WeLoveLocal for £450,000, while Techcrunch reported in August that Beer In the Evening, a venerable British pubs review site, sold for just £30,000 last year.

While neither Qype nor its backers will reveal the valuation at which it raised its latest round, Mr Tornberg’s sales experience will be welcome to help justify the site’s apparent premium.