Spin Ins – A Strategic Opportunity for Venture Capital and Large Software Companies?

In my last blog entry, I asserted there has been a dearth of start-ups in the enterprise software market for at least the last 5 years. According to VentureSource, from a high of 506 enterprise-oriented software start-ups securing a Seed or Series A round in 2000, only 201 new enterprise-oriented software start-ups were funded in 2008 and the vast majority of those used a SaaS, PaaS, or IaaS business model. Very few traditional model enterprise-oriented software companies were funded at all, the notable exception being in enterprise search and analytics.

As a result, large software companies whose innovation/growth strategy has relied upon a steady stream of start-up company candidates to acquire may be faced with a shortage in the not-so-distant future. Consequently, companies that have traditionally relied upon their strategic software providers to deliver innovative new solutions to enable them to further optimize back office and front office operations will suffer. 

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The Capital Needed to Create a SaaS Company

This is a follow on to my post on July 18th, 2008 titled “Does it Really Take $100M to Build a SaaS Business? Say it ain’t so, Joe!”. As part of some research I’ve been doing, I wanted to dig into the actual amount of capital it takes to make a successful SaaS company.

Wachovia Securities issued a report in May 2008 on the state of the SaaS market. On page 25, it shows amount of capital paid in prior to an IPO for 18 out of the 28 public SaaS companies. Here is that list below:

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Fund Raising: What a Venture Capitalist is Thinking

This is an excerpt from a recent interview I did with Advisor Garage – http://www.advisorgarage.com , a web community focused on helping entrepreneurs. I hope it gives you insight when you present to us, or any venture firm, to understand just what in the heck we are thinking as you’re presenting.

Venture Capitalist Gives Entrepreneurs Advice

Top Ten Questions:
1. Tell us about your Venture Capital Company.
InterWest Partners was established in 1979 and is a leading diversified venture capital firm currently investing InterWest IX, a $600 million fund. With more than $2B in capital under management, we take a long-term, collaborative approach to venture funding, providing early-stage and ongoing capital, management development and access to a broad network of resources.

InterWest is the lead investor in more than 70% of the investments we make, reflecting our ability to marshal resources and organize financings on behalf of our portfolio companies. We maintain relationships with our portfolio companies for an average of 5 years and in some cases for 10 years or more. An InterWest general partner serves as a director for 85% of the companies in our portfolio, often continuing to serve even after the partnership’s investment in the company has been returned.

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