Liz Gannes

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Redpoint's Geoff Yang Prefers Early-Stage Risk to Late-Stage Valuations (Video)

“I’m willing to take a lot of risk,” said Redpoint Ventures founding partner Geoff Yang in a recent interview. In addition to trying to find consumer Internet platforms that appeal to broad-based markets, he said, “I’m looking for novel experiences.”

That’s in part how Yang explained recent bets on Formspring, which he described as a “more engaged” version of Twitter; Scribd, which he said is evolving into a digital publishing platform; and the gamer video producer, which has already become “much more mainstream than people think.” Yang is also an investor in Clicker, Bluefin Labs and Oodle.

Yang, who previously backed hits such as TiVo, Myspace, and Excite, talked to NetworkEffect about what he’s looking for now. The three big categories are social media, gaming and the digital living room. Yang said he’d love to see a good social music start-up (he deeply regrets not investing in Pandora), as well as a set-top box that’s a viable “combination of broadcast and broadband.”

Here’s a video from our interview last week of Yang talking about potential investment prospects:

Yang and I also spoke about the frothy funding environment, which he said is driving up the amount Redpoint pays to be involved in any one deal.

To some extent, venture capitalists have less control than ever over the early-stage consumer Internet start-up market. Companies are cheaper to build; accelerators, angels and online resources get entrepreneurs through the early days; late-stage investors pick off companies increasingly sooner; and secondary markets wreak havoc with traditional concepts of liquidity.

With Demand Media and LinkedIn filing to go public, it might seem like a return to a situation where VC expertise is valuable, but Yang said he doesn’t expect those two IPOs to have a significant effect on what he does. “The most exciting companies are still private,” he said.

Yang said that despite discussion internally, Redpoint has not invested in shares of private Internet companies traded on secondary markets, or participated in the recent massive late-stage deals for companies like Twitter and Groupon. Redpoint competitors like Kleiner Perkins, Greylock Partners and Andreessen Horowitz jumped into those rounds despite multibillion-dollar valuations.

VCs have actually become the largest single category of buyers on SecondMarket, accounting for about 40 percent of transactions in the fourth quarter, according to the marketplace’s recent stats.

Yang is skeptical. “What do venture capitalists know about being a momentum hedge fund?” he said.

Plus, despite his interest in the sector, Yang thinks social media ads will be worth only around $50 billion by 2020, which doesn’t seem like enough to support current valuations for companies like Facebook.

Yang did sound a bit wistful, saying Redpoint had at various points declined to invest in many of the consumer Internet start-ups that are today’s heavyweights. “We passed along the way because we thought valuations were out of reach,” he said, “and it turns out we weren’t right.”

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik