Not so long ago, the private markets were so flush with venture capital that many entrepreneurs went in search of funding to launch their own online VC-related companies.
Following the dotcom bust, however, many of these market firms are now scrambling to stay ahead by changing their names and business models, cutting back on investments and trying to predict what will come next.
The leader of the online VC revolution was undoubtedly Garage.com, which started out in 1997 as a Web-based investor that also provided private placement and advisory services. But after a string of troubled investments ? such as defunct online real estate brokerage eHome Inc. ? the Palo Alto, Calif.-based firm last week tweaked both its business plan and its letterhead. The revised organization is now known as Garage Technology Ventures.
“With the name Garage.com, people thought of us as an Internet company funding Internet companies. But we have always been a company that funds early-stage technology companies,” said Garage President Guy Kawasaki. The company also changed its tag line from “We start start-ups,” to “Capital for innovations.”
Kawasaki added that the old mantra poorly positioned the company.
“Investors would think we only have Internet companies and wouldn?t think of looking at semiconductor companies we had as clients,” he said.
And the new name appears to be working as Garage Technology Ventures recently managed to raise $10 million worth of investment capital from the California Public Employees Retirement System (CalPERs), and is set to secure an undisclosed amount from 3i Group PLC. The CalPERS cash will be used to invest in communications, wireless, software, semiconductor and infrastructure companies based in and around California. In all, it expects to back between 20 to 40 start-ups over the next four years.
That development is important for both Garage?s coffers and for its reputation. Before the name change, many market watchers speculated that Garage.com was almost out of capital and unable raise more, so began focusing on its “Boot Camp For Start-Ups” advisory service.
Kawasaki insists that was never the case. “The boot camps are only part of our business model. They are good because they create brand awareness and connect us to deals. They are also a source of revenue and business plans.” He said that it is purely coincidental that Garage.com had not raised a fund until its name changed last week.
Unlike Garage, Seedstage.com LP has decided to discontinue its investment activities until market conditions improve, according to company Co-founder Gerald Youngblood.
The Austin, Texas-based company, launched in 1999 to provide assistance to start-ups looking for venture funding in exchange for equity stakes of around 5%, had originally planned to do 10 to 15 new deals per year.
“It was not a bad idea. It is just not as viable right now but it is as good an idea as any. There just is not enough money right now,” said Tim Miller, the president of Webmergers.com.
However, even when the markets were booming, Seedstage.com still dealt with its share of losers. Market Echo, one of its portfolio companies, shut down because it failed to raise money even before the markets started skidding. Additionally, WaveFly and Sabbatical, two portfolio companies that Seedstage.com has decided to no longer work with, are looking to sell out.
The start-up will now refocus its energy on raising funds for three of the six companies it had orginally funded, Torquin Holdings, Sixth Market and BroadCloud.
No Worms For Earlybird
David Nussbaum chief executive of Earlybirdcapital.com, an online VC and placement agent, would maybe agree that things don?t always turn out as expected.
Earlybirdcapital.com once placed and invested in companies such as IQO.com, B-to-B Video, Wynwyn.com and Viewpoint.com. However, Earlybirdcapital.com has yet to add a new company to it roster this year.
Nevertheless, Nussbaum claims his firm?s returns are up 40% this year, mainly because “we didn?t get to sucked into the dotcom frenzy.” Additionally, Nussbaum said his company is doing better than ever. “The valuations have collapsed, which is good because now we are able to buy five to 10 times the equity in a company. And we get less entrepreneurs with glitzy business plans looking for money.”
According to Webmergers.com, nearly 60% of all Internet companies shutdowns since January 2000 took place in the first half of this year. The month of June alone saw 53 Internet companies close. Overall, over 555 venture-backed Web businesses have shut down.
Contact Danielle Fugazy: Danielle.Fugazy@tfn.com