bloggingbuyouts

The smart money continues to pour into social networking deals. The latest comes from a tier-one VC: Kleiner Perkins Caufield & Byers.

Today, the firm announced a $29 million round for Zynga Game Network. Essentially, the company combines two hot categories – social networking and casual games.

No doubt, this deal is a big validator. After all, Kleiner only cares about companies that have the potential of being game-changers.

So, what makes Zynga different? Well, for the most part, the company has devised innovative techniques to create highly addictive games (some say the process is scientific). Plus, there are opportunities to expand onto mobile platforms and to even create virtual worlds.

Keep in mind that Kleiner has invested in a variety of break-out gaming companies in the past, such as Electronic Arts Inc. (NASDAQ: ERTS). In fact, a Kleiner partner, William "Bing" Gordon – the former CEO of EA – will come on the board of Zynga.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Venture capital-backed IPOs are nonexistent lately (there were zero in Q2). The M&A market has been soft for VC-backed deals. And the economy is slowing.

All in all, this is the recipe for big-time problems in the VC space. Yet, according to a recent survey from Thomson Reuters and the National Venture Capital Association, VCs were actually able to raise 3% more in funds in Q2, to $9.1 billion.

True, the typical kind of investor in VC fund include long-term players, such as endowments, insurance companies, pensions and other types of institutions. And, if history is any guide, VC returns can be lucrative.

But, if you look deeper into the figures, you'll see that there is a flight to quality. That is, the tier-1 VCs are grabbing most of the investment dollars. For example, Kleiner Perkins raised a $700 million fund and Foundation Capital scooped up $750 million.

Despite all this, there could be tough times for the VC industry. Some of the less-noteworthy firms may disappear. More important, if returns continue to lag, it seems inevitable that even the larger firms will eventually feel the pain.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

While the long-term prospects of biotech are strong, it's not an easy business in light of the high capital costs and FDA compliance. The biotech industry is therefore making some changes by applying the concepts to new categories, such as energy.

Take a look at Range Fuels. The company has technologies that convert biomass (which includes waste materials and non-food sources) into fuel-grade ethanol. A key is that the process converts all the biomass into fuel, which means that there is less energy expended. The upshot is cellulosic fuel that is renewable and green.

Range Fuels is targeting a huge market opportunity. To get there, it has raised more than $100 million in a Series B round. The investors include Passport Capital, BlueMountain, Khosla Ventures, Leaf Clean Energy Company and PCG Clean Energy & Technology Fund.

What's more, the valuation on the deal was healthy. According to the Private Equity Data Center, the post-money valuation on Range Fuels was about $276 million and the transaction had fairly "investor-friendly" terms.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

I recently saw a presentation from Dan Nye, who is the CEO of LinkedIn. Of course, all the metrics were spiking. Then again, LinkedIn is the place for professionals to connect.

So, this week the firm has snagged $53 million in venture capital. The investors include Bain Capital Ventures, Sequoia Capital, Greylock Partners, and Bessemer Ventures. As a sign of their optimism, the valuation of the investment came to around $1 billion.

While Facebook and MySpace get lots of buzz, I think LinkedIn is a more interesting play. Basically, the company is leveraging user-generated content to build an immensely valuable database. For example, if an advertiser wants to target someone located in California that is interested in Linux systems, you will definitely get some hits. This is critically important. After all, many other social networks have a tough time monetizing things.

GodTube has reportedly received a $30 million investment from hedge fund GLG Partners, according to PaidContent. The news came on Sunday, unsurprisingly.

GodTube is a quickly growing Christian online video sharing and social networking website and previously received $2.5 million in funding, some from private investor Norm Miller of Interstate Batteries.

The site now has 2 million users per month and was launched less than a year ago in Dallas. CEO Chris Wyatt formerly acted as an executive producer at CBS.

While $30 million sounds like a massive amount, the costs of broadband make it a normal investment for comparable video sharing sites. Recently, GLG invested in digital media companies Glam Media and Spinvox. This round of funding for GLG Partners is $150 million.

Also according to the article in PaidContent, GLG Partners and GodTube each declined comment on the rumored investment.

The late 1990's and early 2000's were the years of venture capital funds. 2006 and 2007 were the years of private equity funds. Gone are the multi-billion dollar club deals that were nothing short of the old leveraged buyouts. But 2008 and perhaps beyond may end up being the years of sovereign wealth funds.

The Financial Times is reporting that sovereign wealth funds grew 18% last year as commodity prices rose and as foreign exchange reserves in Asia built up. But the raw dollar amount is astronomical..... $3.3 Trillion.... $3,300 Billion....

It looks like high oil and gold prices suck away dollars faster than they can be spent otherwise, plus all the goods that come to America and Europe from Asian countries has created a vast wealth transfer. That's the new world, like it or not.

If you'd like to compare this $3.3 trillion figure, this compares to an estimated $13.79 to $13.86 Trillion total GDP according to the CIA's World Factbook.

It's pretty tough to plunk down $10 Billion in a transaction because the size of that alone is massive. If they could magically place that much money each time, there would be enough for 330 investments of $10 Billion per transaction.

Having $3.3 trillion in liquidity and being able to place $3.3 Trillion into raw investments is another issue entirely. If the U.S. needs help with those mortgages they will end up taking, maybe its time to pick up the hotline. The reality is that this would take thousands of transactions before that $3.3 trillion would be fully invested.

There is an interesting article out of the International Herald Tribune that is discussing the competitive environment in Asia that has essentially pitted private equity investment money against venture capital investment money.

As economies in South Asia have rapidly expanded over the last decade, U.S. investors have jumped at the opportunities to capitalize on the growth. However, venture capitalists and private equity investors alike have learned that they have to approach investments more cautiously than they do in the United States. Until the markets in South Asia mature, U.S. investors will likely continue to tread carefully when investing in early-stage growth opportunities.

This article notes that investors are putting their money into companies that have already tested the waters, avoiding early-stage investments that are subject to higher risks and regulatory issues. The size differential here is also surprising when you read into it. Initial funding for a deal in China and India runs much higher, up to $50 million, compared to $2 to $12 million in the United States, because the companies are often already in business, requiring more first-round capital. As a result, the distinction between private equity and venture capitalists is narrowing as they compete for the same mid-stage or later-stage deals in India and China.

In the U.S., the policies are much more clearly defined. Venture Capital firms (and angels) are the ones approached here for seed, start-up, and early stages of financing for emerging companies. Private Equity firms buy established businesses that either can be turned around and run more efficiently or they buy companies essentially for the cash flow streams.

Venture capitalists will have plenty of dough to invest over the next three to five years. New stats from the National Venture Capital Association and Thompson Financial show that fundraising in 2007 reached its highest level since 2001.

For the year, VCs raised $34.7 billion and closed 235 funds, up 9.4% from $31.6 billion in 2006.

Balanced-stage funds raised the most, with $10.6 billion, followed by early-stage funds ($9.7 billion), later-stage vehicles ($7.2 billion) and expansion funds ($4.8 billion). In 2001, by comparison, VCs raised $38.8 billion for 318 funds.

Continue reading at TechConfidential.com.

Venture capital backing may be an essential factor in making entrepreneurial ideas reality, but VC firms that think of themselves primarily as financier "owners" buying startups as if their portfolio companies work for them are unlikely to build a track record of good returns.

The fact is, VC investment is not about the VC -- it's about the entrepreneur. Those VCs who think and act as service providers to their entrepreneurs and management teams are more likely to achieve long-term and ongoing success across their portfolios.

Service-oriented approaches emphasize collaboration over individual partner interests, and patience over keeping score on short-term company performance while disregarding the negative impact that can develop in the long term.

Continue reading at TechConfidential.com.

Even though many people don't know what RSS is about, the technology has millions of users. After all, if you get newsfeeds from places like Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO) or Facebook, then you are an RSS user.

Well, one of the big players in the space, NewsGator, has raised $12 million in venture capital. The investors include Vista Ventures, Mobius, Venture Capital, and Masthead Venture Partners. In all, NewsGator has raised a cool $30 million.

The company has a consumer product, which can make your life easier, especially if you are a news junkie. For example, the NewsGator back-end platform processes about seven million new articles per day.

What's more, there are several enterprise products, which sync nicely with ubiquitous Microsoft (NASDAQ: MSFT) applications. In fact, there are more than 100 Fortune 2000 customers.

Greg Reinacker, who is the founder and CTO of NewsGator, did a write-up on the deal for his blog. And if you want to check out other venture capital deals, visit DealProfiles.com.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

This would not happen in the U.S., or most other places for that matter. But, China is China, and the rules there are different. Goldman Sachs (NYSE: GS) "China partner, Fang Fenglei, is moving forward with plans to set up a private-equity fund that could complicate his relationship with Goldman as both hunt for investments in China," according to The Wall Street Journal. Fang will probably get to keep his title as chairman of the investment banking joint venture, Goldman Sachs Gao Hua Securities.

But why? Feng is about to take dollars out of Goldman's pockets. Feng's new fund will be partners with an investment arm of the Chinese government. Who is going to get first look at the best deal, Goldman or a fund run by the locals? The Journal points out that insiders already have an advantage. "Foreign private-equity investors have found their ability to close deals hampered amid booming Chinese stock prices and mounting concern within China about foreigners buying into important industrial assets."

Yes, the Chinese want to keep the best part of the steak for themselves. It is a closed system, so it can do that. But, Goldman does not have to make it easier.

Douglas A. McIntyre is an editor at 247wallst.com.

For many entrepreneurs, the VC world is a mystery. What do VCs really want? What are the valuation metrics? What are the key terms in a shareholder's agreement?

It's all complex stuff (even for some VCs) and, yes, there are numerous VCs who are blogging about these issues.

Is it a good thing? Well, there's a piece on the topic on Boston.com. So far, it seems the answer is "yes."

After all, if entrepreneurs have accurate guidelines, it means that the parties won't waste time. Something else: certain companies – that may provide tremendous benefits – can get the funding they need.

Oh, a blog can also bring more deal flow for VCs, and in light of the competition, this can be a nice advantage.

What's more, VC blogs can be a good source for those who aren't looking for capital. After all, VCs must keep a pulse on the latest-and-greatest. So, they often have some intriguing opinions.

If you want to check out some of the VC blogs, click here.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements

While there's no question that sex sells, venture capitalists and other investors traditionally haven't been buying. But according to a piece in Thursday's New York Times, that's changing. At last, purveyors of perversion are attracting investment dollars for companies selling sex toys, smut, and hook-up services. According to the piece:

Jimmyjane, a San Francisco company that sells sex-related consumer products including high-end vibrators (a gold-plated one sells for $250), has six venture capitalists among its investors. The company's chief executive said he was close to completing a $3 million to $5 million round of financing with one or more funds - not merely individual venture capitalists but marquee funds.

But there's also a downside:

...Investors are dubious that these companies can turn a sufficient profit to justify the risk. Pointedly, investors may find it tough to take sex-related companies public, or find big companies to acquire them, limiting their profit-making exit strategies. And the universities and endowments that invest in private equity funds and venture capitalists are not likely to approve deals they see as pornographic...

But will that change too, as societal taboos are breaking down? If VCs are finally getting interested, will private equity show up at some point? It seems likely.

If they do, Playboy (NYSE: PLA) could be in play, but only if Hef wants it to be: He owns more than 25% of the company's stock. The company has been struggling for years, but its market cap seems paltry, given that it's among the most recognized brands in the world.

A lesser-known but better performing play is New Frontier Media (NASDAQ: NOOF), a leading supplier of pay-per-view porn.

While pension funds and endowments are understandably uncomfortable with the porn proposition, I wonder how much the idea bothers investors. Would you invest in pornography stocks if you thought they presented a strong opportunity for capital appreciation?

With the success of MySpace and Facebook, venture capitalists are ramping up investments in the social networking space. One of the latest deals is a $20 million round for hi5. The lead investor is Mohr Davidow Ventures.

Hi5 has more than 60 million registered users and has a strong presence in global markets, including Latin America and parts of Eastern Europe.

To get some perspective on things, I interviewed Robb Hecht, who is an expert on social networking and operates IMC Strategy Lab. According to him: "If you were an investor and wanted to get in the game on the most international social network, you'd currently invest in Hi5 (not MySpace or Facebook).

"Hi5's not much of a hit in the U.S., but with a fourth the number of users of MySpace and almost twice as many users as Facebook, the site is both gaining deserved attention and funding.

A piece in today's New York Times took a close look at signs of problems in the venture capital industry. According to columnist Matt Richtell, "Some limited partners, whose billions of dollars help fund the investments made by venture capitalists and who pay their fetching salaries, are unhappy. They say the industry is far less healthy than it advertises and that but for the most successful venture firms, it is struggling."

According to Eric Doppstadt, director of private equity for the Ford Foundation, "I find it shocking that an asset class that has provided so little payback continues to attract so much capital."

Most venture capital firms have made little if any payouts to their limited partners in a long time, and that appeared to be a major cause of concern from VC investors at last month's National Venture Capital Association meeting.

Chief among the concerns expressed is that the high returns are being earned by a very small group of firms -- this is true in private equity too. Whereas traditional investments like mutual funds have a pretty narrow range of performance, there is a huge gap between top performers and average performers.

It will be interesting to see what happens with the future of venture capital. With companies like Google investing large amounts of money as venture capitalists, the heyday of venture capital limited partnerships may be gone.