China blocks Apple knockoff...first steps to IP legitimacy

With the announcement this week of the shutdown of 5 knock-off Apple stores by Chinese authorities, the entire venture community's hopes were raised.

Indeed most California venture capitalists are frustrated with China's constant play on their startups. Every successful Silicon valley startup has been knocked off, Facebook, Twitter, LinkedIn, Zynga, etc not counting the established ones such as Google and Yahoo.

Not that any of these have significant IP (Google's notwithstanding), but they do have trade practices, certain proprietary tools and interfaces that make them unique, and significantly justify their success. 

The National Venture Capital Association, the voice of venture capital, has been making the rounds in Washington DC in order to raise the issue to the Commerce Department and other federal authorities. But as it always stands with China, it is quite difficult for our leaders to make China listen, and enter the world of legtimate IP practices.

Europe is not any less innocent, just maybe a little less conspicuous about it. A German venture firm, run by 2 brothers, made it its mantra to invest in European versions of Silicon Valley success stories. French, Italian and Spanish web copycat artists make a living out of making the local version of their US counterparts, sometimes not even changing the design or the brand colors.

"I hope that the US Patent office gets an overhaul with Congress delivering a real IP protection law that includes today's innovations so that China and Europe stop getting a free ride on US innovations" confirms Rachid Sefrioui, Managing Director at Finaventures, a venture fund based in Los Angeles.

Living Social to be valued at $15 Billion for $1B IPO

It’s not quite official yet, but CNBC is reporting that Living Social has selected its lead underwriters for an IPO.

Among the most likely is JP Morgan, Bank of America and Deutsche Bank.

The Washington, D.C. based company, which is the second-largest daily deals company after Groupon, is seeking $1 billion at an implied valuation between $10 billion and $15 billion.

Groupon is seeking to raise $750 million in an IPO, which it filed with the SEC in early June.

"it makes sense that LivingSocial does not wait too long behind Groupon's IPO" confirms Rachid Sefrioui, Managing Director of Los Angeles-based Finaventures, "the market window for these two leaders is now, and may not be there a year from now; as we all know timing for an IPO is just as important as quality of the company."

The lead underwriters that LivingSocial is likely to work with do not overlap with the ones leading Groupon’s offering, although there might be some overlap if others join later.

LivingSocial has raised a significant amount of money from Amazon.com. Its last round of capital totaled $565 million at a valuation of $3 billion.

SEC comes down hard on crowdfunding; considers changing rules

About a month ago, I wrote a post about the crowdfunding phenomenon, and the fact that none of these sites were focused on two key ingredients: 1/ regulations of promoting investments to the general public, 2/ securing funds and legal issues for the investments they promote and make.

Naturally I received a slew of emails complaining that this was not fair nor does it help the future of crowdfunding as an alternative to traditional investment channels. Though I agree with most, I do believe that crowdfunding platforms will have to differentiate themselves beyond the notion of attracting crowds - an already established paradigm by social networks. 

They will probably have to ride two horses at the same time - classic fundraising that meets regulators' existing laws combined with the crowd's ability to drive deal picking. Once there are a few success stories based on the crowd's input - after all they are the customer too, then the model can grow into a funding platform as well.

Rachid Sefrioui, an experienced venture capitalist from California, confirms that with any new model, there needs to be social acceptance by established crowds in that space. "if there wasn't a MySpace, Facebook would probably not have the traction it has today; if there wasn't a Plaxo, LinkedIn would not have grown so fast". 

So there are precedents in establishing one part of the formula - crowds picking deals, then establishing the second part of it - crowds funding deals, confirms Rachid Sefrioui, Managing Director at Finaventures.

Eventhough the SEC is considering loosening its rules, it will be difficult to see them completely change the rules where it becomes a free-for-all with little or no registration requirements.

Feast or Famine in the Venture Capital business

U.S. venture capital companies are off to their most successful fund-raising start since 2001, in large part because of intense investor interest in social media companies.

The National Venture Capital Association and Thomson Reuters on Monday reported that 36 U.S. VC funds raised nearly $7.1 billion in the first quarter.

According to both organizations, the Q1 numbers mark "the strongest quarter for U.S. venture capital fundraising since the third quarter of 2008 and the best annual start for fundraising in the U.S. since 2001."

The first-quarter numbers also are 76 percent higher than last year's Q1 total of $4 billion raised by 44 funds.

A year ago, of course, the economy was still struggling to emerge from the worst recession since the 1930s. And while unemployment remains unacceptably high, capital has been increasingly available over the past year as investors look for emerging sectors to bet on.

They found one in social media, as companies such as Facebook, Groupon, Twitter, Zynga, LinkedIn and others have sparked the kind of investor excitement -- and warnings of a second bubble -- not seen since the original Internet gold rush of the late '90s. That bubble began leaking air in March 2000, after which hundreds of presumably promising Internet start-ups withered away, unable to turn investment into sustainable revenue and profit.

Confirms Rachid Sefrioui, Managing Director at Finaventures in Los Angeles, "The venture business is either feast or famine; it feels like LPs hate us one year, and love us the next".  

 “This year will be a defining one as many venture capital firms will be fundraising, some of whom have been waiting for the investor climate to improve before going out,” NVCA President Mark Heesen said in a statement.

Bessemer Venture Partners raised the most funds ($1.6 billion) in Q1, followed by Sequoia Capital ($1.3 billion) and J.P. Morgan Digital Growth Fund ($1.2 billion).