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04.25.13
Summer School VC: Lerer Ventures aims to teach students the venture capitalist way

This ain’t your typical summer school: New York City’s Lerer Ventures today announced Summer School VC, a new program that will show students what it’s like to be a venture capitalist. Applications for Summer School VC are being accepted until May 24, after which the firm will choose 15 to 20 students to participate. It’s a month-long program — running from June 25 to July 23 — at Lerer’s New York City offices. Max Stoller, the Lerer Ventures analyst heading up Summer School VC, describes it as an “intensive training program for venture capitalists.” Students will learn about the day-to-day operations of a VC firm and gain an insider’s perspective on the mysterious world of the people bankrolling startups. “If you want to be a part of the next round of VC analysts or associates, it’s a great program for you,” Stoller said in an interview this morning. “[Similarly] if you’re a student thinking about starting a company and raising capital.” The firm has been thinking about running a summer program for a while now, and the task fell to Stoller after joining Lerer Ventures in January. Upon completion of the program, he told me, students will also be able to take advantage of the firm’s contacts within the VC and startup community. Once Summer School VC is over, Stoller says, Lerer Ventures may end up open sourcing some of the teaching materials. NYC’s ff Ventures Capital also recently announced the ff Fellows Program, its own summer program for budding entrepreneurs. Photo: Devindra Hardawar/VentureBeat Filed under: Business, Entrepreneur, New York     

04.25.13
AngelList Commits to Crowdfunding

A site that connects startups and early stage investors, AngelList, is rolling out a long-anticipated equity crowdfunding service to its users this week, according to Chief Executive Naval Ravikant.

Naval Ravikant

Dubbed AngelList Invest, the service has been available to a handful of companies, by invitation only, since December 2012. Eighteen startups, including Transcriptic, Double Robotics and Tred, raised $6.7 million in funding commitments from 620 investors, via AngelList during that test period.
The service is now available to any qualifying startup or “top-tier” accredited angel investor using the site.
Ash Fontana, a “venture hacker” who develops AngelList’s fundraising products explains: Startups who want to try this already-legal form of crowdfunding (known as Reg-D crowdfunding) through AngelList and its partner SecondMarket, must have already attained $100,000 in seed funding from a “top-tier” investor. They must also be incorporated in Delaware.
AngelList ranks accredited investors based on their past experiences founding and funding, or advising companies. If a deal they were involved in was a big success, the investor accrues more points and may qualify as “top-tier.”
It’s not a “stack ranking” but puts investors into a “bucket,” says Ravikant. “You’re not asking if Reid Hoffman is a bigger deal than Ben Horowitz, but you can see they’re both ‘top-tier.’”
The ranking system is programmatic, not subjective, and works somewhat like Google ’s Page Rank technology, he emphasizes. “We’re not in the business of picking winners. We let our community do that, and let the facts speak for themselves,” he says.
Here’s how AngelList Invest works, generally:

  • A founder logs into AngelList, and creates a company profile. If they want to try raising money there, they click a button that says “Invest” on their company profile page. That leads them to an application.
  • There they agree to certain terms and conditions, and provide information verifying that they have attained an earlier investment from a well-regarded accelerator, incubator, venture firm or individual angel. The funding should be at least $100,000.
  • Existing investors must confirm their earlier commitment, as well, over AngelList.
  • Once a company’s qualifying details are confirmed, its profile page will feature an “invest” button, visible only to accredited investors, so the public can’t tell if it’s fundraising and how much it wants to raise.
  • Clicking the button allows qualifying investors to make a “reservation” to fund that startup. They must commit at least $1,000 per order.
  • Once a company attains a minimum of $200,000 in reservations, the AngelList site will notify it, and ask it if it wants to close that deal or continue fundraising.
  • As a founder closes their reservations, AngelList sends the information to SecondMarket to wrap up final due diligence, and complete paperwork with their committed investors.
  • A single-purpose fund is created and managed by SecondMarket, which invests in the startup on paper.
  • Only one fund is listed on a startup’s cap table. Individual investors in the fund are not listed, nor do they have direct access to a startup’s information or operational involvement in that company.
  • SecondMarket charges startups a $10,000 fee to handle legal and compliance issues, and to pool demand up into a single-purpose fund. It also charges investors $250 per deal to cover costs.

Perhaps surprisingly, AngelList’s CEO says he doesn’t plan to generate any revenue through equity crowdfunding.
“We’re doing this at cost,” Ravikant says, “because it’s convenient for our users. We try to match up startups with all of their high value needs. We’re like a Match.com for entrepreneurs, investors and talent. Unlike Facebook and LinkedIn, we’re connecting groups with very specific needs.”
Recruiting is expected to generate meaningful revenue for AngelList. Its “Talent” service lets companies list job openings, and connect only with qualified engineers and other skilled workers who have expressed specific interest in their businesses.
AngelList is making 1,200 introductions and 60 placements per week, between hiring startups and job seekers.
Write to Lora Kolodny at lora.kolodny@dowjones.com. Follow her on Twitter at @lorakolodny
(UPDATE: Adds last two paragraphs on recruiting.)

04.22.13
Wind energy continues to grow on the list of greentech choices

Chances are you’ve heard that we’re using a lot of energy every day and need to, you know, slow our roll. We’ve done an excellent job figuring out how to use fossil fuels, but what about our other natural resources? Wind, some say, is our next best thing. An infographic created by QuinStreet street below shows that in the last 62 years alone, our energy consumption has increased by 46 percent. Every home is using up more energy charging, lighting, and Internet browsing, that we need to start branching out for energy sources. The good news is, we have! Since last year, we’ve upped our use of hydro, solar, and wind usage. But while solar powering is still a greentech favorite with nearly a 34 percent increase in usage, wind is creeping up there with a 16 percent increase. And we’re not just talking far-off wind collectors that only provide energy for facilities willing to use it. Some, such as Oceana.com, believe the energy will trickle all the way down to machines used every day like our cars. The U.S. Department of Energy current supports seven project sites for six-year-long off-shore wind “initiative.” If Congress allows it, each sit will be given up to $47 million over four years to work on wind energy. These projects are located in Austin, Tx.; Atlantic City, N.J.; Cleveland, Ohio; Seattle, Wash.; Stamford, Conn.; Monhegan Island, Maine.; and Virginia Beach, Va. Check out the infographic for more on how wind energy has advanced: Courtesy of: WorldWideLearn.com Wind energy image via Shutterstock Filed under: Green     

04.21.13
Reframing the problems with “freemium” by charging the marketing department

This post was originally posted on Jason Cohen’s personal blog.  Seems like every third startup nowadays is using the “freemium” business model: The lowest service tier is free, and the business is designed to get those users hooked and then upgrade to a paid plan. It can work wonderfully of course, but usually it crushes and destroys companies, not only because it costs more than anticipated but because the founders didn’t realize the business model itself caused them to make incorrect decisions. Foibles of Freemium Let’s dispose of some misconceptions about what freemium actually does for you and how much it costs. Freemium is not customer development Just imagine how much you’ll learn once you have 1,000 real, active users of the system: Everything from behavioral statistics (which features are actually used?) to democratic product development (voting on which features customers would like to see next). Trouble is, those freemium users are not like those who will actually give you money. Frequently the features that paying customers want don’t show up on the freebie’s radar. Think about it: Almost none of the freeloaders will convert to even the smallest tier. If you suddenly started charging only $1/mo for your service, most wouldn’t come aboard. Why is that? Because the need, the interest-level, and the value to the end user isn’t pressing enough for even a pittance. But those who will pay $10a month or $100 a month do have needs, and it’s not just a matter of scale (i.e. because they require more resources), it’s a difference in kind. Your problem is that freemium users outnumber your paying customers 100-to-1, so in feedback forums they drown out the voices of those who actually matter. Freemium conversion rates makes marketing expensive A really good conversion rate for free-to-paid is 4 percent, like Dropbox. Awesome for them, but normal rates are more like 1 percent, and that’s if users are reasonably active. Source: O'GradyDropbox’s free-to-paid conversion rate is 4 percent. I surveyed a dozen small startups who don’t use freemium, and on average they see a 1 percent conversion rate from web traffic to a (real, not “free”) purchase. Even assuming you can get a higher website-to-signup rate for a freemium offering (you’d better, right?), you only get paid on a few percent of those, which means your total conversion rate of web visitors to actual money is 20 to 100 times worse than other startups. Which means it costs 20 to 100 times as much on marketing campaigns to achieve the equivalent revenue. This essentially takes paid advertising and almost all other forms of marketing off the table for driving growth in a freemium business, unless you’re willing to take big losses to get things rolling. It also means you essentially have to build a viral product, because you can’t afford advertising. Getting true viral behavior is very hard — again most companies who attempt this will fail — and even so you need to seed it at the beginning, so you still have the marketing expense problem. The few companies who were clear winners here also raised millions in funding, in part to get over this hump. Freemium tech support is expensive It’s easy to say “We’ll just direct everyone to forums” but when people email tech support they want a response. It’s easy to say “We won’t provide tech support for the free tier — they’ll understand since it’s free,” but if you really do ignore them they’ll be less successful with your tool, which means far less chance of them converting, and less change they’ll evangelize to friends and coworkers. It’s easy to say “We’ll provide a lesser grade of support for the free tier,” but that means every tech support email and chat session and phone call has to be coupled to an account, so you’re wasting time figuring out what level of support this person “deserves”. Are you prepared for people who say, “If you help me through this, then if it works I’ll pay.” Are you hard enough to shut the door in their face, even knowing that in fact they probably still won’t pay? If you care about good support — one of the few true competitive advantages a small startup can have — can you really segment who gets treated well and who gets the cold shoulder? Should you really turn your back on the benefits great tech support brings? Is that conducive to converting free accounts to paid accounts? Is it helping your company’s reputation? Advantages of Freemium Obviously freemium also has important benefits which cannot be denied:

  • Easy to upsell. They’re already using your tool, so whether it’s by special offer, changing the pay scale, or the user just outgrows the confines of their service tier, there’s many ways a person can start giving you money. That’s something few other business models can boast.
  • Stats for selling. It’s awesome homepage marketing to be able to say “Join 1,000 other happy users.” It’s social proof, just like the RSS counter in the corner of the blog implicitly saying “if 40,000 others think it’s worth their time to read this every week, maybe it’s worth yours too.” It’s also useful when bagging bigger customers because it proves your system can scale, both in technology and in training new users with minimum effort.
  • Easy to start. Even a “30-day free trial” or “money-back guarantee” is a much bigger barrier than “free.” Getting a web visitor to stop perusing and start using the product is a critical step in any customer acquisition, and you’ve just diminished the barrier as much as possible.
  • Not using the competition. Well, they might still be, but at least you have a horse in the race. One more user for you is one fewer user for them.

So in the face of the positives and negatives, how do you decide whether it’s right for you and, if it is, how do you think about it so that you’re reaping the benefits while mitigating the costs? Charge Freemium to the marketing department A pattern emerges from those “advantages” bullets: It’s all marketing. It’s lead-gen, reducing barriers to conversion, and competitive advantage. Retool your expectations of freemium: It’s a marking cost. It’s more expensive than you give it credit for, but it could very well be the best marketing strategy available. So how do you decide whether those costs are worth the benefits? My technique is to “charge the marketing department” exactly like AdWords or any other lead-gen campaign: measuring the total cost of acquiring new paying customers. The reasoning is: You have a theory that by spending the money to support these freeloaders, you’re in fact building an efficient path to real, paying customers. That goal — revenue — could possibly be attained other ways: AdWords, blogging, or any other marketing technique. So just like any marketing campaign, the marketing department should pay, measure the results, and compare the ROI against other methods. (And make sure the cost is much less than the total revenue — the equation that most startups fail to achieve, exactly because they don’t honestly consider the total cost to acquire.) How do you decide how much to charge the marketing department? Suppose you really were charging those customers, but also that you’re only looking to recoup costs and not make a profit. Amortize those costs — servers and tech support — and come up with a correct cost-replacement price for that tier. That’s what those users should be paying (minus profit), so that’s the amount the marketing department needs to “reimburse” the rest of the company. Obviously you shouldn’t get carried away with the bookkeeping. But you have no excuse to not be measuring that per-user cost so that you’re running this freemium program with full knowledge of the cost and comparing it to other forms of marketing. Jason Cohen, is the founder ofWP Engine & Smart Bear Software. Filed under: Business     

04.21.13
The ‘startup visa’: Why Canada made it a priority & why the U.S. should too

This is a guest post by Boris Wertz On Thursday, March 28, Canada announced that a new startup visa program would begin accepting applications. Governments can be notorious for slow change, especially in the eyes of entrepreneurs who move at an incredibly fast-pace. But Canada’s federal government moved impressively quickly to implement this new visa, which is aimed at encouraging entrepreneurs from all over the globe to call us home. What does the startup visa accomplish? Immigrants — who are 30 percent more likely to start a business than non-immigrants, according to the U.S. Small Business Administration – can now be fast-tracked into Canada if they receive a $200,000 investment from a designated Canadian venture capital fund or $75,000 from a designated Canadian angel investor group. This makes it much easier for entrepreneurs to avoid bureaucratic red tape and the stress of immigration status uncertainty. But the program doesn’t just make it easier for immigrants on a financial level. It makes it easier on a volume level as well. In 2012, a mere 700 of the old startup visas were issued, while the new program has carved a path for up to 2,750 entrepreneurs to launch their startups in Canada per year. While the Canadian government is garnering praise for making the visa a reality, the truth is that in order for the program to come to fruition, everyone had to make it a priority: government, investors, and entrepreneurs worked together for two years to make things happen. Everyone, to use startup terminology, hustled. How Summify provided the impetus for Canada’s startup visa But what started it all? To find the answer, look no further than a Canadian startup success story: Summify. Romanian founders Mircea Paşoi and Cristian Strat overcame everything that was wrong with Canada’s old system, creating a popular company that was acquired by Twitter for a tidy sum in January 2012. Summify’s founders came to Canada in 2010 to start their company and were quickly backed by top-tier venture capital. Yet Paşoi and Strat — who turned down Silicon Valley jobs at Facebook and Google to build a company in Canada — could only get six-month visas, forcing them to leave and return to the country repeatedly. They also weren’t allowed to work for their own company because the old immigration law book considered the two entrepreneurs to be potential drains on Canadian society, even though the opposite was evidently true: Summify was creating jobs in Canada and attracting significant investment. It was their story of frustration and adversity that inspired me and other Vancouver-based entrepreneurs Danny Robinson (co-founder of Perch) and Maura Rodgers (co-founder of Strutta) to lobby for an easier way for foreign technology entrepreneurs to start their company in Canada. Fortunately for us, the government expressed strong interest to push our initiative forward. A startup visa for the U.S.? So now you’re wondering, what about the U.S.? Where is its startup visa? And how did Canada — a smaller nation with a less established technology ecosystem — beat its neighbor to the South on this front? It would be easy to argue that the U.S. doesn’t need any help attracting entrepreneurs. It has Silicon Valley, which was ranked by Startup Genome as (to no one’s surprise) the world’s best startup ecosystem. Entrepreneurs from every corner of the planet are naturally drawn to the Valley. But to make that argument would be to go against the very nature which made the Valley so successful: if the US sits back and watches other countries implement startup-friendly visa programs, it’s going to get left in the dust — just like when a big company is disrupted by a scrappy startup. Startupvisa.com, a site dedicated to raising awareness about the situation, contends that U.S. immigration policies are “now hurting our competitive edge in the global economy.” Last year, four of the world’s five top-ranked startup ecosystems were American cities. But Canada has two cities in the top 10 (Vancouver and Toronto) and a third in the top 20 (Waterloo). If Canada continues to beat the US to the punch on important issues such as these, it won’t be long before the tables are turned. The importance of foreign entrepreneurs building their companies in the US cannot be underestimated. Few realize that nearly half of Silicon Valley startups are founded by immigrants. Without them, the Valley would not be the world-leading startup ecosystem that it is today. But there’s a problem — this trend is reversing. From 1995 to 2005, foreign entrepreneurs founded 52 percent of Valley startups, according to the Kauffman Foundation. Yet since then, they’ve founded just 44 percent. A startup visa would get immigrant entrepreneurship back on track and allow Silicon Valley and the rest of America to retain its competitiveness. Unfortunately, there’s a major drag on the U.S. initiative’s progress in the form of political battles. While in Canada everyone generally agreed the startup visa was simply about improving entrepreneurship, in the US the initiative became a political issue. And we all know, things don’t usually don’t move forward so long as they’re mired in politics. Many Americans have made the startup visa a priority, like Canadians did — just not enough of the ones who have the power to make it a reality. With the legislation already out there, foreign entrepreneurs are now stuck in limbo as it sits in the House and the Senate. At this point, they still don’t know whether politics will push it past the finish line or kill it. In the meantime, they can always apply for a Canadian visa. Boris Wertz is one of the top tech early-stage investors in North America and the founding partner of Version One Ventures. His portfolio encompasses over 40 early-stage consumer internet and mobile companies, including GoInstant (acquired by Salesforce), Indiegogo, Top Hat Monocle, Indochino, Summify (acquired by Twitter), Wattpad, Sparkbuy (acquired by Google), Julep, Suite101, Yapta, Chloe & Isabel, Edmodo, and Flurry. Before becoming an investor, Boris was the Chief Operating Officer of AbeBooks.com, which was sold to Amazon in 2008. Filed under: Business, Entrepreneur     

04.19.13
The Daily Startup: U.S. Venture Investment Falls in First Quarter

Top stories in today’s VentureWire:
Art by Mike Lucas
U.S. venture capital investment has fallen for three straight quarters and is now at the lowest level since the third quarter of 2010, reflecting the slow pace of venture fundraising and exits. First-quarter data from Dow Jones VentureSource also show that business services are in, while seed-stage investing is falling out of favor. Semiconductor investment is barely registering. Investors committed $6.36 billion in 752 financings for U.S.-based companies in the first quarter of this year, according to data from VentureSource, which is owned by Venture Capital Dispatch publisher Dow Jones.
Verivo Software has raised $4 million in new funding from its prior backers to help developers build mobile business apps. Verivo’s software is built for customers building enterprise applications, which need features that most consumer applications don’t, including data integration and security. Verivo is one of several startups that are raising more money for tools to help businesses build apps, now that corporations are becoming big buyers of iPads.
Also in today’s VentureWire, Allecra Therapeutics has secured 15 million euros from venture firms as the startup races with several other companies to develop antibiotics for Gram-negative bacterial infections that threaten many hospitalized patients…Epizyme has filed for an initial public offering after agreeing to partner with Abbott Laboratories to develop a diagnostic test for use with Epizyme’s most-advanced product candidate, a therapy for mixed lineage leukemia…and Guavus, which makes software to deal with massive data sets produced by telecommunications networks, has raised $9 million from the venture arm of Goldman Sachs Group and Asia-focused firm TransLink Capital.
(VentureWire is a daily newsletter with comprehensive analysis of all the investments, deals and personnel moves involving startups and their venture backers. For a two-week trial, visit our homepage, scroll to the bottom and click “try for free.”)
Elsewhere around the Web:
Angel investor Ron Conway has become a San Francisco power broker looking to make the city more business-friendly, the New York Times says.
Social media site Reddit is taking heat for crowdsourcing activities it enabled to track suspects in the Boston Marathon bombings.

04.19.13
5 questions venture capitalists should ask e-retailers before investing

This is a guest post by Dotcom Distribution executive Doug Sternberg Business is booming in online retailing. During Cyber Monday ’12, consumers spent nearly $1.46 billion online, underscoring the value of growth-minded online commerce startups in the venture capital community. But what many eCommerce startups, private equity groups and venture capitalists don’t realize is that once the retailer surpasses a certain number of daily orders, their third-party logistics (3PL) provider often can’t keep pace with sales. In many cases, successful eCommerce startups grow so quickly that orders exceed the capacity of existing fulfillment routines and resources. Investing $20 to $400 million in a non-scalable eCommerce startup isn’t an attractive option for any investment firm. So to protect their investments, VCs and equity partners need to properly assess the capabilities of the retailer’s third-party logistics provider before they commit to the next round of funding. Evaluating whether third party logistics are scalable Thorough assessment of 3PL scalability should be a priority for any organization investing in an eCommerce startup. By asking the right questions, you can improve your ability to determine whether the retailer’s logistics provider is capable of scaling fulfillment to accommodate a steep growth curve.

  • Does the 3PL have proven experience and a performance-based history with larger online retailers?

There is a big gap in capabilities within the logistics industry. Most 3PL providers are capable of leveraging basic infrastructure to help retailers reach the critical $5 million, 150 orders per day benchmark. But from an investment perspective, the 3PL has to be able to handle a “hockey stick” growth curve, seamlessly enabling the retailer to go from its early stages to $50 million without having to completely retool infrastructure.

  • Does the 3PL consistently provide the retailers with key performance metrics?

Accountability is the driving force behind a healthy, sustainable 3PL relationship. Although 3PL management teams usually tout the importance of accountability, the real test is whether or not the logistics provider regularly delivers mutually agreed upon performance metrics to the retailer and investors. Since many smaller 3PLs don’t have strong reporting recipes, the availability of key performance metrics can also be a sign that the 3PL is equipped to handle much larger fulfillment volumes.

  • Are the 3PL’s shipping and packaging solutions tailored to meet the retailers’ specific needs?

In addition to making sure that the 3PL has the capacity to manage the retailer’s growth requirements, VCs need to determine whether the company’s logistics provider has the equipment, technology and facilities to provide tailored shipping and packaging solutions on a large scale. Custom software development and first-rate client services departments are telltale signs that the 3PL is equipped to deliver tailored solutions after the next round of funding kicks in.

  • Are evolution and improvement initiatives a priority for the 3PL?

The best 3PLs are constantly evolving through continuous process improvement initiatives, generating ideas that remove costs from the supply chain and use technology to help clients grow their business.  A quick way to assess the 3PL’s improvement agenda is to ask about the company’s current initiatives to drive change as well as examples they have implemented in the past.

  • Is the 3PL responsive and culturally aligned with the retailer?

The company cultures of the retailer and the 3PL must be aligned before rapid growth occurs. Although technology resources are important, startups poised for explosive growth should have a solid relationship with a responsive logistics provider that can continue to provide a high level of customer care even after capacity has increased tenfold. Fulfillment and logistics snafus routinely sink successful eCommerce startups. But with a little digging and a few simple questions, investors can make real progress toward protecting their investments and securing reliable fulfillment channels for the e-retailers in their portfolios. As Executive Vice President of Client Strategy, Doug Sternberg directs the strategic planning activity with client partners to insure management teams are aligned and client objectives are consistently achieved. Doug’s background includes 30 years’ experience managing fulfillment, ecommerce, catalog, direct marketing and supply chain initiatives. Prior to Dotcom, Doug served the industry in various management and executive capacities as VP of Operations, Director of Customer Service, VP of Client Services and VP of Marketing & Sales.  Filed under: Business, Cloud, Enterprise     

04.18.13
Google Ventures-backed app makers test wisdom of stock-picking crowd

An app from a pair of Stanford grads, backed by Google Ventures, launched on Thursday to see just how smart the crowd is at picking stocks.

Robinhood was created by Spacetime Industries, a Palo Alto startup founded by Vladimir Tenev and Baiju Bhatt, and is available only on iPhones and iPads for now.

"This is a modern version of the investment adviser," Bhatt told me.

Robinhood encourages users to test their stock-picking acumen against others, scoring them on how accurately they predict the direction…

04.17.13
Researchers create tiny battery that recharges 1,000x faster than current tech

Personally, my capacity for patience is quite low when it comes to waiting on my smartphone or tablet to charge. I doubt I’m the only one either. Thankfully, the next generation of devices will fix that issue thanks to a new lithium-ion micro-battery developed by researchers at University of Illinois. By changing the structure, the new batteries will not only be smaller, but they’ll also charge 1,000 times faster than what’s currently used in most devices. “This is a whole new way to think about batteries,” said university professor of mechanical science and engineering William P. King in a statement. “A battery can deliver far more power than anybody ever thought. In recent decades, electronics have gotten small. The thinking parts of computers have gotten small. And the battery has lagged far behind. This is a microtechnology that could change all of that.” Basically, that means device makers will no longer have to chose between making something powerful or something that can run for a long time without needing a new charge. As for smartphones, King said the new batteries will enable us to start making devices that are about 30 times smaller and radio signal range that’s 30 times longer. The rea But it still could be a while before you start to see this new battery tech pop up in devices you can actually buy. The research team is currently working on integrating the new batteries with electronic components and figuring our how to keep costs low for manufacturers — something that might be just as important as the discover itself. Photo credit: University of Illinois; Via Engadget Filed under: Business, Gadgets, Science HealthBeat 2013 is a new conference showcasing how technology is transforming health care. We'll explore how IT is driving out inefficiencies on the hospital, practice, and patient levels. Check out full event details here, and register here. .blurb-cat-science hr { margin: 10px 0 10px 0; }    

04.17.13
Chinese Entrepreneur Credits Murdoch Philosophy for Success
Fritz Demopoulos

Media mogul Rupert Murdoch’s record with U.S. startups has been chequered, especially after News Corp .-backed digital music company Beyond Oblivion’s high-profile bankruptcy last year, but in China the octogenarian’s influence on one entrepreneur has had the magic touch.
Fritz Demopoulos, founder of Qunar.com, a Chinese travel search site that has just secured a $57 million fifth round of funding, credits Murdoch with influencing the direction of his first start up known as Shawei.com, or “brave shark.”
Murdoch is chairman and chief executive of News Corp., which publishes this blog.
“Murdoch said there’s only three ways to make money: news, sport and entertainment,” said Demopoulos, who is a former News Corp. employee. He said he eliminated the idea of a news-related company in China because of the challenges attached to the restricted sector, while admitting he didn’t quite understand what Murdoch meant by “entertainment.”
Therefore he went down the sports route, setting up Chinese sports portal Shawei.com in 1999 with  $3 million from IDG Capital, Intel Capital and Softbank. The company was sold around 18 months later to Tom.com for $20 million.
He said the idea of a sports portal initially made investors uneasy, as it was an unproven concept in China, a sentiment that he would later face when setting up Qunar.com, with venture capitalists at first declining to put money into the travel-search company because they didn’t understand the idea. This prompted Demopoulos and Qunar’s other co-founders to self-fund the company, until GSR Ventures and Mayfield Ventures became some of the Beijing-based company’s first investors.
Qunar.com has since raised five rounds of funding, in total worth around $380 million. Investors include Chinese search engine company Baidu Inc. , which is a majority shareholder after investing $306 million in 2011, as well as GGV Capital.
“Chinese VCs are open to new ideas,” said Demopoulos, but in the case of Qunar.com “perhaps didn’t think the market was big enough” at a time when Chinese travelers were far fewer than they are today.
While many foreign entrepreneurs in China comment on culture clashes and varying ways of doing business as barriers in the mainland, for Demopoulos it’s that difference that has made his startups successful. For example, for Shawei.com, the name “brave shark” distinguished the company among other sports-related businesses, while he credits “creative differences” with Qunar.com’s other shareholders as “leading to good things.”
Qunar.com may at last be on the cusp of an initial public offering, with a representative confirming a public listing is on the cards, although she wouldn’t comment on the timing. Qunar.com other co-founder CC Zhuang talked about an IPO in 2011, saying the company would aim to list in the U.S. because it would be a “great branding event.”
Demopoulos has since stepped down as Qunar.com’s chief executive, and is now investing in startups from a personal fund. He still sees value in the travel sector, and has invested in Russian travel site Ostrovok.ru, which last month reined in a $25 million Series B round. Ostrovok.ru’s institutional investors include General Catalyst Partners, Frontier Ventures and Accel Partners.
Write to Sonja Cheung at sonja.cheung @dowjones.com. Follow her on Twitter at @SonjaCheung.

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