Despite everything, corporate spending on IT was going to hold steady, went the conventional wisdom. Big tech companies selling to big companies — except the financial ones — were supposed to have the situation well in hand. All those big companies looking to get things done in a faster, cheaper and more efficient manner would be writing big checks to the big lumbering tech companies, which would translate into operational savings: Faster servers, faster PCs, cloud services, better software.

At least that was the conventional wisdom until today. Now Oracle has gone and harshed whatever buzz there was left. Once investors got their heads around the wider implications of the software giant’s disappointing quarter, they concluded that the entire enterprise tech sector required a sharp spanking. Here’s a rundown of the damage:

• Oracle shares fell by $3.40 or nearly 12 percent, and briefly traded within 20 cents of their 52-week low.
• IBM, recently the engine of steady, dependable tech growth, fell $5.77, or more than 3 percent.
• Cisco Systems fell 49 cents, or more than 2 percent, and teamed up with Big Blue as the day’s worst Dow performers.
• Salesforce.com fell 5 percent.
• VMWare fell nearly 10 percent.
• SAP fell $3.49, or more than 6 percent.
• Hewlett-Packard held up (relatively) better than the rest, falling only 47 cents, or less than 2 percent.

Okay, you get the picture. Investors wanted out of any stock that touched enterprise tech today. Oracle is considered a bellwether. The result was predictable. But does the crux of the argument that fueled today’s fear have any merit? Maybe not.

There are reasons to hope it’s not quite so bad. For example, IT consulting house Accenture, which saw its own stock fall more than 4 percent today, recently reported a pretty good quarter, with record revenues and earnings. Its strength came from $7.8 billion in new bookings, which isn’t exactly a negative indicator.

Second, even if corporate spending does slow down, tech M&A deals could help larger companies grow despite themselves. Oracle, Cisco and IBM have a combined $87 billion in cash and short-term investments among them. And as we’ve seen, there’s still plenty of appetite among large tech companies for gobbling up smaller ones, especially in the red-hot software-as-service space.

Recent examples include SAP’s $3.4 billion acquisition of SuccessFactors, Oracle’s $1.5 billion deal for RightNow, and Salesforce’s grab of Rypple.

And the potential targets are numerous: There’s Taleo, NetSuite, Workday; even newly public Jive Software.

Finally, the currency weakness that has Oracle and so many other companies running uphill when dealing with non-U.S. customers isn’t going to last forever. Yes, it’s true that IT companies like it better when the dollar is weak against the euro. Considered from that angle, Oracle and other global tech companies suffer less from a demand problem than a temporary — though it is going on way too long — currency problem.

But even if the euro crisis does last well into next year, there are still the BRIC countries, which Intel, another significant tech bellwether, can’t stop praising. And — dare I say it? — the U.S. economy is showing signs of coming back to life. In several states, private payrolls are growing just enough to offset the declines in employment at state and local governments, and as new tax revenue flows, government payroll declines will slow, as well. As 2012 wears on, the U.S. might find itself rolling into an honest-to-goodness recovery, which would fuel improvements to IT budgets. Though the hard-drive shortage caused by the flooding in Thailand won’t make this any easier.

So don’t worry. Or don’t worry too much.

Aneel Bhusri

Today, Workday will announce that it has just raised $85 million in new financing, bringing its total amount of capital raised to $250 million. Sources familiar with the terms of the deal tell me that the investments value Workday at $2 billion.

The funding round isn’t coming from traditional venture capital players, but from institutional investors who will want to be shareholders of Workday when it goes public in the second half of next year. The round, which is being described as a Series F, includes T. Rowe Price, Morgan Stanley Investment Management, Janus, and Bezos Expeditions, the personal investment entity of Amazon CEO and founder Jeff Bezos.

I’m also told, by sources familiar with the deal, that William Danoff, the manager of Fidelity’s $80 billion Contrafund, the mutual fund giant’s largest stock-based fund, has participated in this funding round. This would be the Contrafund’s third recent investment in a privately held Internet company, the other two being Facebook and Zynga. In fact, it’s the same group of funds that took part in a huge round with social gaming force Zynga in February; in Groupon in January; and which earlier this year bought nearly three million shares of Facebook for $25 each.

Previous investors include Dave Duffield and Greylock Partners, who are in for $90 million across four rounds; and New Enterprise Associates, which joined a $75 million Series E round in 2009.

Why raise from institutionals and not VCs? “Because Workday is going to go public, and probably before the end of next year,” Bhusri told me. “Rather than do a round that adds an overhang to the existing capital structure, this is a group of investors who will likely buy more in the IPO,” he said. “In some ways, it’s an early debut of an IPO.”

And while there’s no S-1 filing from Workday to peruse just yet, Bhusri told me that Workday is growing plenty fast. Having disclosed $160 million in billings in 2010, Workday, he says, is on track to do twice that — or about $320 million in 2011 — and that it’s close to breaking even. So this round of capital is insurance. With the world economy so out of joint, if no logical window for an IPO emerges in 2012 — a reasonable worry — then Workday won’t be forced, should the need arise, to raise more capital in a difficult market.

So what is Workday, exactly? For the answer, you have to turn the clock back to 2004, when the software giant Oracle made its initial hostile bid to take over PeopleSoft. Bhusri was a senior executive and co-chairman of PeopleSoft’s board. After losing the battle to resist Oracle, he and co-founder Dave Duffield decided that the next battle for enterprise software would be in the cloud. Workday was born within months of their departure from PeopleSoft.

The plan, Bhusri says, was to create the next generation of PeopleSoft’s software, or the next generation of SAP’s Human Resources and Enterprise Resource planning software — essentially, software that businesses need to run day to day. But rather than deliver it in the traditional manner — run it on machines at the customer’s location — it’s all delivered via the cloud. “It’s as if you were going to start over with a clean sheet of paper and design this kind of software all over again,” Bhusri says.

And Workday’s customers aren’t exactly small players. Its average customer has between 10,000 and 15,000 employees. Among its 250-odd customers, the biggest is Flextronics, the huge electronics manufacturing company, which has 200,000 employees. Other customers include Time Warner, Thomson Reuters, Chiquita Brands, and perhaps unsurprisingly, Salesforce.com. There are some two million employees on the system. All that after only four years of actively selling the product.

And what Workday sells is a system that tends not to get replaced very often in large companies — perhaps once a decade. That gives the company an advantage when it asks for contract commitments that last three years; most cloud companies offer their services on a pay-as-you-go basis.

Workday’s targets are Bhusri’s old customers who bought PeopleSoft software to run their businesses one product generation back, and also those who run SAP software. So when a new customer signs on it’s usually one or the other being displaced. Other rivals include Lawson, Infor and, occasionally, the payroll giant ADP.

The typical new customer, Bhusri said, is using one of those other platforms and is ready to upgrade. “To upgrade to the newest version, they get a price quote that’s so high they start looking for a better way,” he says. “That’s when they find us.”

And Workday isn’t sitting still with HR software. Its next battle will be in financial planning software that companies rely on to handle money — accounting, expenses, procurement. Workday already has 50 customers running the financial stuff. Once they try Workday’s HR, they like what they see, making for an easy upsell. Others just swap out both the HR and financial parts in one go, Bhusri said. And the competitive targets are the same as well: Oracle and SAP. One wonders if they aren’t just a little worried.

Three of the area’s most interesting entrepreneurs join us to share their take on the Valley’s culture and commerce, and how they’re trying to export that as they venture into Asian markets.

Dave Goldberg had already built a successful company — Launch — before selling it to Yahoo; now he’s trying for a second act with SurveyMonkey’s very profitable self-serve surveys. Sukhinder Singh Cassidy traded a high-flying job at Google for a chance to build her own company at Joyus, a new take on e-commerce. And Brian Chesky’s Airbnb has become one of the era’s iconic success stories: the vacation rental service seems to have moved from concept to billion-dollar hit overnight.

1:52 pm: Peter Kafka takes the stage followed by SurveyMonkey’s Dave Goldberg, Joyus’s Sukhinder Singh Cassidy and Airbnb’s Brian Chesky.

“This is relaxing because I don’t have to ask you whether you’re buying or selling Yahoo,” Peter quips.

1:53 pm: A first question about the bubble in Silicon Valley: Why are so many people throwing money at companies like the ones you people run? Are you aware that what’s going on in Silicon Valley doesn’t really look like the rest of the world?

Airbnb’s Brian Chesky’s fields this one, but answers it with a pitch for Airbnb.

Peter circles back and puts the question to him again.

Another non-answer from Chesky.

1:57 pm: Peter moves on to Joyus’s Sukhinder Singh Cassidy who seems more willing to answer the question at hand.

“There is a tremendous amount of revenue traction against companies who are getting premium valuations,” she says. “Look at Groupon, Zynga … their revenue traction is real. People are spending money on those services … But what’s most interesting is that when you have that many companies innovating and growing, you end up with a talent war and what you really see is a bubble around talent. That’s more what concerns me. I don’t look around and say wow, people who are non-substantive are getting funded, I look around and say wow, I’m competing for talent with Google and Facebook.”

2:00 pm: SurveyMonkey’s Dave Goldberg jumps in. “I think the difference with companies being created now is that not only are they getting revenue traction very quickly, but they have great margin structures. So they will be quite profitable, when they choose to be. … A lot of the the valuations are real. I think people are going to be surprised by how many big businesses are being created right now.”

2:03 pm: Sukhinder Singh Cassidy: “If there is a lot of capital available, you do want to take it and you take more than you need. But the rate at which you spend it is a fundamentally different question. … the glory of a high valuation is a means to an end. It’s more about saving for a rainy day.”

2:05 pm: Question for Airbnb’s Brian Chesky: Is anyone counseling you to scale back your rounds?

Chesky says no. Talks a bit about investing ahead of growth.

Peter circles back, “What do you use the money for?”

Chesky explains that Airbnb is opening lots of local offices around the world. The company is also investing quite a bit in product and in marketing as well.

2:07 pm: In the first bubble, the idea was to go public. That phenomenon doesn’t exist anymore. Does the fact that there really isn’t an IPO window anymore affect your planning?

Goldberg: “If you’re building a long-term business, you don’t really need to worry about the IPO window. People are building businesses that don’t need to go public. It’s a huge headache to run a public company. I think a lot of people could go public today, but they’re choosing not to.”

2:09 pm: Do you think we’ll see a boom in start-ups in Asia, or do you think there’s something special about Silicon Valley?

Chesky believes we will. He notes that there are start-up cultures emerging abroad, in Berlin for example.

Sukhinder Singh Cassidy says she sees huge pockets of innovation in lots of emerging markets. But she notes that many of the entrepreneurs in those markets got their “sea legs” in Silicon Valley.

“What I see now is people who’ve lived in the Valley moving back to these emerging markets and bringing their experiences back with them,” she says.

2:16 pm: Can a guy in a garage still build a successful company?

Sukhinder Singh Cassidy: “I think there is always that possibility. If you’re smart enough, you can make it happen.”

2:19 pm: On to the Q&A …

2:19 pm: Question for Chesky: Can you extend your business model into other categories?

Absolutely, says Chesky. He talks a bit about how Airbnb has already expanded to more categories (whole-home rentals, sublets, boats, cars etc.).

Chesky’s next vertical? He won’t say. “We’re going to take cues from the community.”

2:24 pm: How do you bring your success in Silicon Valley to Asia?

Goldberg says it’s all about talent: It’s hard to hire people locally and it’s even harder to hire them abroad. So really, you need to tap into the entrepreneurs around you. … It’s a real challenge in places like China. It’s definitely not easy.

2:30 pm: That’s it. Up next, a demo from Kibot.

Silicon Valley’s Entrepreneurs

The anecdote appears in a new profile of Dropbox in the latest issue of Forbes, which also disclosed that the service is on track to hit $240 million in sales this year, even though the vast majority of its users pay nothing to use it.

But the meat of the story comes further in: Dropbox just closed a massive $250 million Series B round of funding, at an implied valuation of $4 billion, from Benchmark Capital, Goldman Sachs, Greylock Partners, Institutional Venture Partners, RIT Capital Partners and Valiant Capital Partners. Early investors Sequoia Capital, Accel Partners, and Hadi and Ali Partovi also participated in the round, bringing Dropbox’s total funding to date to $257.2 million. Houston’s stake, Forbes says, amounts to 15 percent of the equity, which would be worth about $600 million.

Houston may yet live to regret turning Jobs down. The Apple CEO proposed another meeting that never happened, then managed to single out Dropbox for disparagement as part of his iCloud keynote in June. That got the attention of Houston, who quickly fired off a memo to his team that included a list of once-hot companies that later crashed: MySpace, Netscape, Palm and Yahoo. Apple — which once viewed Dropbox as the sort of “strategic asset” for which it keeps its $70 billion war chest stuffed — is now the competition.

Aaron Levie, the 26-year-old CEO of Box.net, said the expansion round brings in strategic partners like Salesforce.com and SAP Ventures, as well as venture-capital firms such as New Enterprise Associates and Bessemer Venture Partners, along with former investors including Andreessen Horowitz. In total, Box.net has now raised $162 million.

Box.net, founded in 2005, gives businesses a secure way to share content online and on mobile devices.

Read the rest of this post on the original site »

That’ll buy a lot of digital pushpins.

(UPDATE: Pinterest and Andreessen Horowitz confirmed the new funding, which is $27 million. The firm’s Jeff Jordan will join Pinterest’s board.)

In an interview, Jordan said that the amount of interest in Pinterest — get it? — was a big reason for the deal.

“People love the product, even though it is only in beta so far, with consumers who use it voraciously,” he said. “It’s elegantly social.”

Co-founder Ben Silbermann said the focus at Pinterest — which has only eight employees — was to “provide users with a place to discover and share in an inspirational way … we want to help people get in touch with their interests in real life.”

The start-up, which has no revenue to speak of yet and is still in invite-only mode, has become the hottest start-up of late in Silicon Valley, given its quick growth and compelling idea that has been called “experiential shopping.”

To me, it is just a really cool way of finding stuff of all kinds — from kids’ toys to inspiring quotes to travel tips — using a very savvy crowd of users via social visual bookmarking.

It’s kind of like Oprah on steroids, with users creating and sharing virtual collages on the handsome and easy-to-use site. Others can than “re-pin” them and great stuff rises in rank.

The site has previously raised $10 million from Bessemer Venture Partners, valuing the company at $40 million.

Here’s some electric weekend reading for those interested in the push and pull between venture investors and start-ups in the frothy Web 2.0 environment.

In an email to Airbnb CEO and co-founder Brian Chesky (which I obtained, embedded below), former Facebook exec Chamath Palihapitiya, who now runs an investment fund called the Social+Capital Partnership, is passing on participating in the recent $112 million round for the hot online rental site that was announced in July.

The deal — which values the company at $1.2 billion — has not officially closed yet, but includes venture firms such as DST Global, Andreessen Horowitz and others. Previous investors include Sequoia Capital.

Palihapitiya confirmed to me that it was his email and that his possible investment in Airbnb was small.

That said, his concerns center on how much voting control of new investors’ preferred shares the founders have in the latest round and also a $22.5 million cashing out, $21 million of which is going to those founders.

Another $9.6 million is being used to buy secondary stock from current Airbnb shareholders, who have to render parts of their vested stakes for the money.

Such wrangling between investors and entrepreneurs is not uncommon in Silicon Valley these days, as ever-dumber money chases ever-more-powerful geeks. But Palihapitiya’s email is a smart, reasonable and well-written argument to stop the madness.

According to sources close to Airbnb, the numbers that he refers to below are accurate, as is what appears to be an unusual level of voting control by its founders. Presumably, it is to protect the company from possible future sales on the secondary markets and to keep control with its founders as the number of investors grows.

In any case, the Palihapitiya email to Chesky is well worth the read (I have removed email addresses as a courtesy):

From: Chamath Palihapitiya
Date: Sat, 1 Oct 2011 11:16:05 -0700

To: Brian Chesky

Subject: Airbnb financing…

Brian,

Cc Marc, Reid, my deal team

Thanks again for giving me the chance to participate in your latest financing. I had a chance to review the docs at length yesterday and I wanted to follow up as, quite honestly, I’ve never seen a deal like this over ~60 investments I’ve done and I’m pretty concerned.

I’m all for getting the best valuation you can, minimizing dilution and maximizing control. We did this brilliantly at Facebook…all of our financings (except our first $$$ from Peter Thiel) were done not out of necessity but opportunity. As such, our investors had virtually no control and it resulted in a much better outcome. As we’ve discussed, I generally don’t believe investors add much to a success story and so minimizing their impact is a great strategy when you are onto something that is working.

This said, while several of these concepts are reflected in the current deal, there is one big thing that I am fundamentally against and violates my principles and will prevent me from participating in your round. When I saw that you guys were taking $31M out of the company, I didn’t think much of it as I just assumed it would entirely be via a secondary sale.

But as I understand the deal, it seems that you are doing only $9.6M in secondary and $22.5M as a dividend to common (of which $21M goes to you and your co-founders). I am really uncomfortable with this and don’t think its in the spirit of building a good, long term business. Effectively, it is a strategy that allows you guys to take money out of the business and not dilute yourself — I’m not sure why this is such a big deal when you guys are almost 90% vested and the financing is at $1.2B where your dilution is marginal. Further, it excludes many of the employees that probably have helped you and your co–founders get the company to this place as most of these folks probably don’t have any stock but have unexercised stock options and thus won’t get a dividend.

My basic principle on this stuff is that if you want liquidity, that’s fine, but you should make it available to everyone. Otherwise, no one should get it. Your current deal is the farthest away from this principle that I’ve seen in a while…this strategy has been done once before — at Groupon. We can see how “well” they are doing and how short term the investor community is now viewing their motives. I really think you can do better than this…and that you are better than this.

Separately, when you look at successful tech companies, it seems that dividends are an approach used by cash rich operations to distribute excess earnings — in fact, the most successful, cash rich tech company in the world, Apple, hasn’t issued a dividend and they have more than $75B in cash! Again, while I think Airbnb will be a good company, this is nowhere near the truth now — you guys still need to scale and build this thing for the future.

I really think you are onto something but I would implore you to not take the easy way out. Treat your employees the same as you’d treat yourself. Do things that you will be proud of and can defend to anyone including your Board, employees, prospective hires etc. In such a competitive hiring market, you are competing with not just your obvious competitors, but also any successful tech company who is also looking for great talent. A principle that treats your employees as well as you’d treat yourself is a huge strategy for differentiation, retention and long term happiness of the exact types of people you will need to be successful. In contrast, if you are viewed as self-dealing and shady, it will only hurt your long term prospects…

In summary, I’m passing on this financing because I strongly disagree with what’s going on. I’m not sure who advocated this approach but I did mention this to Reid [Hoffman, another Airbnb investor via Greylock Partners] last night and he was of a similar mind to myself and surprised this was the approach being taken. If you want some good advice — I would ask that you consider pinging him about different ways to think about going about the liquidity portion.

If you change your mind on how to close this financing, let me know and I’d love to reconsider. Otherwise, good luck and lets keep in touch.

Take care,

Chamath

In a scathing assessment from an analyst who’s rarely so negative on HP, Sacconaghi argues that investors are universally opposed to the Autonomy deal based primarily on the high price that HP is paying, which works out to 11 times sales, versus the option of using HP’s precious cash reserves elsewhere.

Unhappy HP investors have little recourse, Sacconaghi writes, and Autonomy shareholders seem especially eager to get the deal done. As the Financial Times reported yesterday, the fact that 42 percent of shareholders signed on to the deal so early in the tender process gives an indication of their opinion that the price HP is paying is a favorable one that’s not likely to be met by another bidder. It’s also an unusually high response rate this early in the process.

And there’s little if any chance that HP shareholders could stop the deal now even if a majority of them wanted to, he says. By paying cash for Autonomy, HP doesn’t need shareholder approval, and according to the terms of the deal, HP has to follow through absent a “material adverse change,” such as new negative information about Autonomy (like a major legal problem or something on that scale).

There’s certainly plenty to dislike about the deal. As Bloomberg News reported, HP sold $4.6 billion worth of bonds in order to help pay for the deal, though with yields on corporate bonds near record lows the timing to take on debt could be worse.

But even with corporate bond rates at relatively low levels, HP is paying more to finance its debt than its peers. Compare, for example the five-year fixed-rate bonds that HP issued yesterday with a coupon rate of 3 percent. In July, IBM issued five-year fixed-rate bonds at a coupon rate of 1.95 percent. I’m not exactly an expert on corporate bonds, but the way I understand it is like this: If you think of bonds like a credit card, HP is paying more than 1.5 times the interest on its debt than IBM is. That block of five-year bonds represents $1.3 billion worth of the $4.6 billion offering, making it the biggest portion of the debt offering disclosed in an HP regulatory filing yesterday.

Separately, two securities law firms said today they have launched investigations of HP and its board of directors. The Briscoe Law Firm, headed by former Securities and Exchange Commission attorney William Briscoe, and Powers Taylor LLP announced they’re investigating what they call “potentially misleading statements” by HP between Nov. 22 and and August 18. During that period, the firms allege that HP executives and directors made false statements or failed to disclose material information about the TouchPad tablet and the webOS operating system running on it. HP, they say, “lacked a reasonable basis for their positive statements,” and thus caused HP shares to trade at artificially high prices, peaking at $48.99 on Feb. 16. HP shares were nowhere near that high today, closing at $22.93, up 23 cents.

Well, Mr. and Ms. Entrepreneur, your friends at IBM are thinking of you today. Big Blue will today announce the availability of $1 billion in new financing options specifically aimed at small and medium businesses to pay for purchases of new tech hardware, software and services.

Now before you roll your eyes, harrumph, and restrain yourself from saying “Who cares about small and medium businesses anyway?” allow me to answer: You do. In the U.S., small businesses account for a huge swath of the economy, accounting for about two-thirds of new jobs created over the last 15 years, and they hired 40 percent of high-tech workers. They also employ roughly 90 percent of the workforce of the entire world.

And get this: According to IBM, the total amount spent on technology each year by small and medium businesses — IBM defines them as having fewer than 1,000 employees — amounts to a quarter of a trillion dollars.

Compared to that, well, a billion is a little slice. But when credit is hard to get from ever-more-cautious banks in a tough economy, CIOs will see it as a welcome move. Half of small businesses crash and burn within five years because they can’t get access to capital.

Not only is IBM making the cash available but it is making it easy to get. Most of IBM’s small and medium business customers interact with Big Blue not directly, but through business partners — third parties like CDW and Ingram Micro — who sell IBM gear and do the heavy lifting associated with getting different bits of hardware and software working right. They also tend not to have huge IT departments as larger companies do, says Andy Monshaw, the general manager of IBM Midmarket Business. “It’s a really fragmented market with literally thousands of local players,” he says. “It’s a market based on long-term local relationships.”

Entrepreneurs are running up against expectations of the so-called “consumerization of IT.” They have easy-to-use technology at home, but the stuff at the office is older and not cutting it. One big thing these companies are looking at is cloud computing. An IBM survey found that 60 percent of them are shopping around for cloud services. That got the attention of IBM’s Global Financing unit, which helps customers pay for new gear and services in much the same way that car dealers help people buy cars — by providing attractive financing packages.

On top of that, IBM has come up with a long list of products and services that are priced in ways that make sense to smaller companies — stuff that gets charged on a per-user or consumption basis. IBM has hacked together a list of products and services to fit with the effort, including cloud services, analytics and security, as well as products from recent acquisitions like Netezza, Cognos and Cast Iron.

Certainly there’s a lot of hand-wringing going on, especially in the U.S., about what it will take to get the economy creating jobs again. In fact, the president of the United States is going to talk about that very subject in an address to Congress and the nation tonight. And a survey done by Pepperdine University and Dun & Bradstreet found that 35 percent of small business owners say their biggest impediment to hiring more workers is access to capital.

Betabeat first reported Union Square’s involvement today; sources I’ve talked to tell me this has been more or less a done deal for about month.

Turntable is still lining up angel investor/advisers that it wants to recruit from the ranks of high-profile music industry executives, and once that’s done they’ll make the whole thing official. I’ve asked Turntable and Union Square for comment, but don’t expect to hear back.

Closing the funding round — which I believe will be somewhere in the $6 to $7 million range — will give Turntable’s Billy Chasen and Seth Goldstein time to tackle their real challenge: Figuring out how exactly they’re going to work with the music industry.

The service, which lets users “DJ” streaming music for crowds who gather in online listening rooms, doesn’t have any deals with major record labels and publishers. Earlier this summer, the company told me that it planned to move forward as a “non-interactive” Web radio service, a la Pandora, which doesn’t have licenses, either: Instead it operates under the umbrella of the Digital Millenium Copyright Act, and pays copyright holders a rate established by an arbitration board.

But people familiar with the company say it is considering trying to strike deals with the labels after all. The upside is that negotiated pacts could give the service much more flexibility. The downside is that getting those deals done could take a long, long time — just ask Spotify, which took more than two years to break into the U.S.

At least one music industry source I trust, though, believes the fact that Spotify has gotten to the U.S. means there’s now some sort of music industry/business development glasnost. According to this line of thinking, the big labels are now more willing than ever to consider new arrangements, and perhaps Turntable can squeeze in through this window of opportunity.

My bet is that you can’t ever go wrong wagering on big music label intransigence, but we’ll see.

In the meantime, it’s interesting to note that this is the second big bet Union Square has made on music — at the beginning of the year, it announced an investment in music distributor SoundCloud.

Union Square partner Fred Wilson has always had a big personal interest in music, but until this year he hasn’t put his company into any music bets, precisely because of the licensing headaches that come from most ventures. Maybe the business really is changing.

In a move reminiscent of one done by Facebook in 2009, Twitter is close to completing an $800 million funding deal that will include a second part in which around $400 million of the total will be used to cash out current investors and also employees.

According to several sources close to the situation, the complex transaction could be completed within two weeks.

Along with basic funding needs, this is largely being done this way to give those with stakes in the San Francisco microblogging company an ability to monetize their privately held common stock and also to do this selling in a more organized — and legal — manner.

That is especially important since the company is not likely to go public for at least a year or more. And, while it could also be sold to a bigger company such as Google, that is also not in Twitter’s immediate future.

Before this secondary follow-on, the first part of the deal will be a $400 million investment for preferred shares by new and also existing shareholders, as was reported by the New York Times last week.

That round will indeed value Twitter at $8 billion, as the Times reported, which is a higher number than in other earlier reports.

This is more than double what Twitter was valued at when it got $200 million in venture funding from Kleiner Perkins in December at a $3.7 billion valuation.

Once the latest investments are complete, Twitter’s total cash haul since it was founded five years ago will be $760 million.

Key new moneybags are expected to be Russian investing heavyweight DST Global, which has invested in Facebook, Zynga and Groupon; as well as the digital growth fund of J.P. Morgan and perhaps others.

Current investors include Benchmark Capital, Union Square Ventures, Spark Capital and several other venture firms, as well as a spate of prominent angel investors.

The latest funding is an important one for Twitter and will up the pressure for its management, including CEO Dick Costolo, to really get its business growing in terms of revenue and profits.

Twitter is still struggling with coming up with a truly lucrative business model, and its execs have presented a number of them, such as promoted tweets, largely based on advertising.

It reportedly has $200 million in annual revenue from its efforts, which is still small in comparison to other Web 2.0 start-ups.

Interestingly, that was a similar situation to where Facebook found itself two years ago, when it allowed its employees to sell 20 percent of their shares.

That financing was part of a $100 million add-on to a $200 million investment in the social networking company by DST. At the time, the tender offer valued the company at $6.5 billion for the common stock, or $14.77 a share.

Of course, Facebook is worth upward of more than 10 times that now, so any Twitter sellers might want to consider their options carefully.

It is not clear exactly who can sell their Twitter shares, and in what amount, in the new deal. When Facebook did a similar move, for example, its top leadership could not sell any of their stakes.

A Twitter spokeswoman would not comment about any fund raising.

But, interestingly, in an onstage interview at a Fortune magazine tech conference this week, Costolo criticized stock trading of the shares of popular start-ups on secondary exchanges as a “distraction.” Like other companies, he said, Twitter had instituted stricter policies to limit the ability of its employees and investors to trade on those markets.

The fast-growing Internet messaging service is currently in discussions to raise a new round of private financing, said people familiar with the matter. The move is set to raise hundreds of millions of dollars in a round valuing Twitter as high as $7 billion, said one of the people. It is unclear which investors are participating in the new round.

The talks come seven months after Twitter, which lets people broadcast and read messages called “tweets,” raised $200 million in a financing led by venture-capital firm Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion.

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With the new money, LightSquared has pulled in $2.3 billion in funding over the last 12 months.

“This latest round of financing signals another endorsement by the financial markets of our business model, and LightSquared’s intent to use private capital to build out a new network to meet the growing demand across this entire nation for wireless broadband access,” LightSquared CEO Sanjiv Ahuja said in a statement.

Meanwhile, the company is also working to address concerns that there could be interference with GPS systems if LightSquared builds its network on the spectrum it currently has a license for.

Last week the company submitted a plan to the Federal Communications Commission that it says takes care of 99.5 percent of interference issues.

“In contrast, the GPS device manufacturers, unlike relevant government agencies, have been largely uninterested in finding a win-win solution,” LightSquared said in a statement. “Rather, their only answer to a problem of their own making is to demand that the government simply block LightSquared from using the company’s own spectrum to roll out the first wholesale-only wireless broadband network for the entire nation -– an economic benefit worth as much as $120 billion to consumers.”

Yet another “stealth” start-up came out of hiding today with a big Silicon Valley funding.

That would be Transphorm, a power conversion technology company, that has raised $20 million more in a Series C financing led by Google Ventures and including Kleiner Perkins, Foundation Capital and Lux Capital.

That adds to $18 million already raised.

Said the Transphorm about its goals:

“Inefficient electric power conversion results in hundreds of terawatts of lost energy across the electrical grid, equivalent to 318 coal-fired power plants and costing the U.S. economy $40 billion a year. Leveraging breakthroughs in modern materials and a world-class team, Transphorm’s ultra-efficient and cost-competitive power modules eliminate up to 90 percent of all electric conversion losses.”

Here’s the official press release:

Transphorm emerges from stealth to redefine energy efficiency

Company backed by $38 million from leading venture capital firms Kleiner Perkins, Google Ventures, Foundation Capital, and Lux Capital

New approach to electric power conversion eliminates multi-billion dollar efficiency losses

Mountain View, Calif. February 23, 2011–Transphorm Inc., redefining energy efficiency with the most efficient and compact power conversion technology, emerges from stealth mode today at a private event at Google Ventures. The company announced it completed a $20 million Series C financing led by Google Ventures, with participation from existing venture investors Kleiner Perkins Caufield & Byers, Foundation Capital and Lux Capital. This brings the total capital raised from all rounds to $38 million.

Inefficient electric power conversion results in hundreds of terawatts of lost energy across the electrical grid, equivalent to 318 coal-fired power plants and costing the U.S. economy $40 billion a year. Leveraging breakthroughs in modern materials and a world-class team, Transphorm’s ultra-efficient and cost-competitive power modules eliminate up to 90 percent of all electric conversion losses. From HVACs to hybrids, from servers to solar panels, Transphorm enables significant energy savings across the grid.

“We founded Transphorm to re-imagine what enhanced efficiency in the generation and use of electrical energy can do for our economy,” said Umesh Mishra, CEO of Transphorm. “Why put up with needless energy waste in every electrical system and device, when we can quickly and cost-effectively design products that are inherently energy efficient? Transphorm’s next-generation power modules cut waste, increase efficiency, reduce system size and simplify overall product design.”

“Since we deliver a complete solution from the original materials through to the final modules, we are in a position to rapidly innovate and deliver product in quick response to demand,” said Primit Parikh, President of Transphorm. “We look forward to helping our partners open a new era in ultra-efficient and compact power conversion.”

Founded by the experienced entrepreneurial team of Umesh Mishra and Primit Parikh, Transphorm boasts world-class engineers as well as top business and manufacturing executives who will guide the commercialization of Transphorm’s technology.

“Solving the enormous problem of power waste will create immediate, long-term shared value for Transphorm’s customers and investors,” said Randy Komisar, partner, Kleiner Perkins Caufield & Byers. “It was imperative for our firm to get behind Transphorm because it is the first company with a viable, commercial-scale solution to energy losses associated with high-voltage power conversion.”

Transphorm delivers custom-designed power modules that are easy to embed in virtually any electrical system, from consumer electronics products, to industrial motor drives, to inverters for solar panels and electric vehicles, and sells these modules to power equipment manufacturers. The company will unveil its first product at the upcoming APEC conference, taking place in Fort Worth, Tex. from Mar. 6 -10, 2011.

“We recognize the need to innovate to uncover new opportunities for optimal energy efficiency,” said Toshihiro Sawa, Managing Director, Technology & Development Division of Yaskawa Electric Corporation. “The time is right to develop power conversion technologies that can cut power waste and reduce excess heat, and Transphorm provides a viable solution today.”

“It is imperative that power conversion efficiency be increased both to cut unnecessary losses and to save energy, but also to reduce waste heat which has negative impact on volume, weight, cost and reliability,” said Dr. Leo Casey, CTO, Satcon Corporation. “The innovations made by Transphorm offer an attractive solution to this problem.”

That’s the vision for CapLinked Inc., a new start-up that wants to be the go-to place for setting up and closing deals, as well as managing portfolio companies after the close.

The company has raised $525,000 in angel funding from Peter Thiel, Dave McClure’s 500 Startups; Joe Lonsdale, co-founder of Palantir Technologies; Aman Verjee, chief financial officer at Sonos; and David Anderson, managing partner of 7th Rig. CapLinked previously raised about $400,000 in a financing from individuals in 2010.

CapLinked co-founder and Chief Executive Eric Jackson is a former vice president of marketing at PayPal Inc. and knows investors Thiel, McClure, Lonsdale and Verjee, all formerly of PayPal.

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The company, which is also just on the verge of launching its product, was started by two former Google employees from the Android team. CEO Tom Moss said he and Gaurav Mathur saw a huge opportunity to offer companies the flexibility of Android with the kind of security features companies get with BlackBerry and Windows Mobile 6.5.

“This trend of consumerization of IT is really shortsighted,” Moss told Mobilized in an interview on Monday morning. Businesses still want the same things they always have, including high levels of manageability and security. However, the rise of the iPhone and Android with their powerful capabilities have left IT in reactionary mode. “We’re kind of going against the trend but we think it’s the right bet.”

As part of the deal, 3LM will be a wholly owned subsidiary and continue to work with multiple device makers, Moss said. Financial terms were not disclosed. Motorola was one of the companies that 3LM had been working with.

“We didn’t pursue anybody,” he said, noting there were multiple interested parties. “They are the only OEM that is just doing Android, which kind of matches our mojo and our DNA. We really think it is the best platform for enterprise IT.”

As for the acquisition, Moss said he had built a small team that did a lot of product development in a short period of time, but needed to start building up capabilities for sales and support, all of the kinds of things that would have required some sort of financing. “We don’t have to worry abut funding.”

The deal will also help the company get an in with the kind of customers and partners it needs. “It’s hard as a 10-person start-up to be taken seriously, where as if you are Motorola people will at least talk to you.”

Moss said there is a narrow window to shift the trend away from enterprises just “giving up” and allowing all manner of devices onto their network as long as they have secure email. Although that is where things are headed, Moss noted that a lot of businesses still use BlackBerry and even Windows Mobile devices because of their higher security, though clearly that trend is shifting.

“We really want to get that out there before people just give up on security,” he said. “It’s a question of urgency. We wanted to get out there really quick.”

The company, which started last year, has about $1.5 million in seed investment from angel investors and VC firm Accel Partners.

RUSNANO will also provide $100 million in debt guarantees, while Plastic Logic’s existing investor Oak Investment Partners will add another $50 million in equity investment.

“We evaluated multiple locations and potential partners across the globe for our second factory, Plastic Logic CEO Richard Archuleta said in a statement. “We determined Russia with RUSNANO as an investment partner was the best fit for our business. RUSNANO has demonstrated it is fully invested in our goal to commercialize plastic electronics. We are gratified by the RUSNANO investment package and the continued commitment of Oak Investment Partners in bringing this disruptive technology to market.”

Plastic Logic has been showing off its plastic display technology for years (including a demo at D7), but scrapped its first product–the Que e-reader (see image), after several delays. The company said it still hopes to bring to market a business-oriented e-reader and is working to develop such a product. The company said that the Zelongrad factory, which should be ready for production by 2013 or 2014, will employ more than 300 people and have the capacity to crank out hundreds of thousands of displays per month.

“This investment signifies the potential that we see in the future of Plastic Electronics across a variety of commercial and consumer products,” RUSNANO Managing Director Georgy Kolpachev said in a statement. “Flexible plastic electronic displays will provide
another major milestone in how people process information. Entering this new disruptive segment at the stage of its inception gives Russia a chance to win a leading position in global market of future electronics.”

Despite its new Russian plans, Plastic Logic said it plans to continue investing in the Dresden, Germany, plant it opened in 2008, as well as its research and development center in Cambridge, England.

Still unclear is just how it will compete with the likes of the Kindle, iPad, Nook and the many, many other tablets and e-readers that will hit the market before anything ships from Dresden, Zelenograd or any other Plastic Logic facility.

In a blog post, co-founder David Lieb said the 15-person company now has more than 25 million users for its mobile-to-mobile information-sharing service, which runs on Apple’s iOS and Google’s Android operating systems. “This round of financing solidifies our priorities to build a world-class engineering and product organization here in Silicon Valley,” Lieb said.

Tonight, an hour-long special on the topic will air at 9 pm ET on Bloomberg TV (and will be streamed live on Bloomberg’s Web site), featuring Yuri Milner, CEO of Digital Sky Technologies and one of the key investors who helped put together that deal. Unfortunately, while Bloomberg’s press release listed Milner as a “guest,” it neglected to mention that he won’t be an actual live guest (as initially reported here). Instead, clips from a Milner interview last year will be interspersed with current commentary from writers David Kirkpatrick, Paul Kedrosky and Bill Cohan, and marketing professor Scott Galloway.

Goldman has reportedly given its clients limited information and only until the end of the week to pony up a minimum of $2 million to invest in Facebook. One Goldman customer told Reuters he felt like he was being expected to invest on “blind faith.”

BoomTown’s Kara Swisher yesterday described the Goldman-Facebook deal as “sneaky,” “elite” and “opaque.”

Here’s the promo for the Bloomberg program:

Please see the disclosure about Facebook in my ethics statement.

With the red-hot acquisition dance between Google and Groupon sucking up all the attention, it’s easy once again to ignore the No. 2 player in the fast-growing social buying space–LivingSocial.

But not everyone is–according to sources close to the situation, the Washington, D.C.-based company that also focuses on local deals is in advanced talks for a major strategic investment–as high as $150 million–by online retail giant Amazon, at a very hefty valuation of over one billion dollars.

Sources said there will also be a deep operating partnership between the pair, as part of the deal.

Sources said the investment negotiations with Amazon is not complete yet, of course, and could fall apart.

But interest in LivingSocial has heightened of late, given the $6 billion in cash, stock and earnouts that BoomTown has reported that Google is considering ponying up to purchase the category leader, Chicago-based Groupon, and grab ahold of its 12 million users across the globe and $500 million in annual revenue.

But LivingSocial–which has been thriving even in Groupon’s flashier shadow–has 10 million subscribers worldwide in more than 120 markets and five countries, including the U.S., Canada, the U.K., Ireland and Australia.

And, as the start-up noted when LivingSocial announced its acquisition of Jump On It recently, it is currently booking an average of more than $1 million a day and is projected to book well more than $500 million in revenue in 2011.

That is what is apparently attracting Amazon, which has almost no profile in this lucrative local space, despite some attempts at its own solution. It bought a small and quirky daily deals site Woot, for $110 million in June.

But, rather than sell, sources said LivingSocial management wants to keep the company independent, and thinks a sale of Groupon will give it a huge opportunity for growth.

Why? Well, even though Groupoogle or Goopon are fun to say, the inevitable regulatory review could drag on, resulting in a slowing down of innovation in the bigger Google culture and the distinct possibility of newly rich Groupon execs flying the coop (in private planes).

More investment money should help.

LivingSocial announced in April that it had raised $14 million in a Series C round, after grabbing $25 million in a Series B venture financing only a month before. And it raised $10 million on top of that since 2008.

Sources estimated at the time that the valuation for LivingSocial was several hundred million dollars.

The newest round was led by Lightspeed Venture Partners; Earlier investors U.S. Venture Partners, Grotech Ventures and former AOL head Steve Case.

A report of the Amazon interest in LivingSocial was first posted several weeks ago in a in VentureBeat, a day before BoomTown first broke the news of the Groupon and Google discussions.

Both Amazon and LivingSocial declined to comment.

But here is an October video interview I did with LivingSocial CEO Tim O’Shaughnessy on a recent visit to Silicon Valley.

The entrepreneur has worked at AOL, as well as at Case’s Revolution Health in Washington, before moving on to the local deals start-up.

Enjoy:

]]> http://allthingsd.com/20101201/amazon-poised-to-make-a-major-strategic-investment-in-livingsocial-to-counter-groupoogle-threat/feed/ 3 http://allthingsd.com/20101122/socializing-vacation-rentals-the-airbnb-guys-speak/ http://allthingsd.com/20101122/socializing-vacation-rentals-the-airbnb-guys-speak/#comments Mon, 22 Nov 2010 18:38:26 +0000 Kara Swisher http://kara.allthingsd.com/?p=37601

A few weeks ago, BoomTown sat down in a hipster coffee place in a hipster section of San Francisco to talk to the hipster trio of founders of AirBnB.

Which, if you think about it, is a very hipster name for what is essentially the ability to rent out your apartment, home or wack-a-doo space (such as a shoe-shaped hotel or Frank Sinatra’s Palm Springs estate).

AirBnB is an alternative to other fast-growing similar sites such as VRBO–Vacation Rentals By Owner, only with more style and niche cool.

But the former Y Combinator start-up is not without its more traditional aspects, such as a recent $7.2 million Series A funding from Greylock Partners.

Also on board, its initial Silicon Valley venture investor, Sequoia Capital, which forked over $600,000 in seed financing last year.

That came after AirBnB’s first foray for travelers to find inexpensive lodging–often no more than just a room for events, such as the U.S. Presidential conventions–turned into a wider and more pricey range of offerings, with 700,000 nights booked so far in 166 countries and 8,000 cities.

AirBnB also includes–of course–reputation and social networking elements–as well as a very slick mobile app with unusually lovely photos–and also easy booking logistics.

And, because it is also very hip to do so these days, there is a Groupon-like daily deal too. But of course there is!

It’s actually all very well done, an interesting way to find cool places to stay beyond the usual.

Here are its founders–Joe Gebbia, Nate Blecharczyk, and Brian Chesky–talking about it all in a video interview, as well as a slideshow of its Top 40 collection of its more unusual properties to rent, such as a plane stuck in a tree in Costa Rica:

]]> http://allthingsd.com/20101122/socializing-vacation-rentals-the-airbnb-guys-speak/feed/ 6 http://allthingsd.com/20101122/yardsellr-closes-5-million-series-a-round/ http://allthingsd.com/20101122/yardsellr-closes-5-million-series-a-round/#comments Mon, 22 Nov 2010 15:00:07 +0000 Kara Swisher http://kara.allthingsd.com/?p=37580

Yardsellr is announcing today that it has closed a $5 million Series A funding round led by Accel Partners.

Harrison Metal, which is run by investor Michael Dearing and gave the social listings and transactions site seed financing last year, also participated in the round.

Yardsellr says it uses “social plumbing to power all interactions between buyers and sellers, although users create listings and consummate transactions.”

Welcome to eBay, Facebook-style!

Online shopping with a social element is starting to boom, at least in terms of financings.

Earlier today, Svpply–a social retail discovery site stocked with stuff you and your friends think are cool–got a $550,000 seed round investment led by Spark Capital and Founder Collective, along with high-profile angels like Ron Conway, Foursquare co-founder Dennis Crowley and former Myspace co-President Jason Hirschhorn.

And Topguest, a check-in loyalty service that was founded just five months ago, announced last week that it nabbed $2 million in Series A funding, as well as nabbing well-known Facebook investor Peter Thiel as an adviser.

Yardsellr takes yet another social tack, organizing the Internet shopping experience around “Blocks”–using the traditional neighborhood yard sale as an analog inspiration for innovation.

Blocks are micro-communities of people interested in the same products, determined via social networking, specifically following them on Twitter or liking them on Facebook.

Founder Daniel Leffel said in an email that it was better to organize this way “instead of categories, because categories organize products while Blocks organize people.”

Then, he said, when sellers list items, for free, they go out into the feeds of members who have joined the relevant blocks. Sellers can then buy additional traffic to their listings.

Yardsellr also handles payments for sales, with the buyer paying a small transaction fee.

That’s opposite from eBay, where Leffel once worked. Several former eBay execs are also working at the start-up.

]]> http://allthingsd.com/20101122/yardsellr-closes-5-million-series-a-round/feed/ 1 http://allthingsd.com/20101112/dont-call-it-a-bubble-says-fred-wilson-but-things-are-troubling/ http://allthingsd.com/20101112/dont-call-it-a-bubble-says-fred-wilson-but-things-are-troubling/#comments Fri, 12 Nov 2010 17:48:13 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=25815 Fred Wilson is one of the most high-profile investors in tech. And his blog is certainly one of the best-read. So if the Union Square Ventures partner says we’re in a bubble, that would be a very big deal.

But Wilson doesn’t use the word “bubble” anywhere in the post he wrote this morning. Instead he refers to “storm clouds” in two markets: One for tech start-up financing, and one for tech workers themselves (courtesy Google, Facebook, et al).

These are ominous clouds! A few excerpts from his post:

• “The competition for “hot” deals is making people crazy and I am seeing many more unnatural acts from investors happening.”
• “We are also seeing large deals ($5mm to $15mm) getting done in a few days with little or no due diligence. Investors are showing up at the first meeting with term sheets. I have never seen phases like this end nicely.”
• “I think both of these situations are unsustainable. And anything that is unsustainable will eventually stop happening.”

On Twitter, I summarized Wilson’s post this way: “@fredwilson says yes, it’s bubbletime.” And then I heard immediately from Betaworks’ Andrew Weissman and O’Reilly AlphaTech Ventures’ Bryce Roberts, both of whom have invested with Wilson in the past: They don’t think Wilson means there’s a bubble.

And neither does Wilson himself:

Why does it matter if we describe something as a “bubble” instead of “troubling”? I’m not sure that it does for the layperson. But I think it’s very meaningful for professional investors like Wilson. For one thing, if they think it’s a bubble, then their own investors might wonder why they’re continuing to make bets.

It’s also worth noting that even if we are in a bubble, it’s nothing like the housing bubble, or the 2000-era Web bubble (when Wilson was making VC investments via Flatiron Partners): The scale isn’t remotely similar, and the general public has very little stake in the outcome.

But it’s Wilson’s post, so he gets the last word here. Here’s his response to an email I sent asking him for additional input (I’ve added a punctuation mark or two):

I don’t think it’s helpful to use the bubble framework. There is a supply demand imbalance in hot deals and sw engineers, particularly in Silicon Valley. That is driving up prices but also leading to some odd behavior. I just think it’s healthy to talk about it calmly and rationally.

[Image credit: Joi Ito]

]]> http://allthingsd.com/20101112/dont-call-it-a-bubble-says-fred-wilson-but-things-are-troubling/feed/ 2 http://allthingsd.com/20100922/comcast-unlikely-to-boost-investment-in-clearwire/ http://allthingsd.com/20100922/comcast-unlikely-to-boost-investment-in-clearwire/#comments Wed, 22 Sep 2010 18:35:07 +0000 Nat Worden http://voices.allthingsd.com/?p=30187 Comcast’s Chief Financial Officer Michael Angelakis said Wednesday the cable giant is unlikely to increase its investment in Clearwire, the mobile-broadband provider.

Clearwire has long been cited by Comcast (CMCSA) as an important part of its wireless strategy. Comcast owns nine percent of Clearwire (CLWR), while Sprint Nextel (S) owns 54 percent and Intel (INTC), Google (GOOG) and Time Warner Cable (TWC) also hold stakes in the company.

But tensions have recently flared over the strategic direction of Clearwire, leading to questions about the company’s next round of financing. “Clearwire has to figure this out,” said Angelakis at an investor conference in New York.

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