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 "The
$50 Million Giveaway"
August 22, 2005
By Michael V. Copeland
Like most venture capitalists, Jim Armstrong, managing director
of Clearstone Venture Partners, receives dozens of business plans
every week. But when we stopped in recently, he was more interested
in talking about what was missing from the pile than about any hidden
gems. Riffing on the future of instant messaging, for example, and
how a killer business could be hatched around his concept, Armstrong
complained that he was ready to write a check to get it launched,
if only a smart business plan would hit his inbox. "I've got
$1 million to invest in this tomorrow," he said, "if I
can just find the right team."
A column that appeared on Business2.com the next day described
the company Armstrong envisioned and his wish list of criteria.
Those who thought they had the right stuff could send Armstrong
a business plan. A few weeks later, Armstrong had a new gripe: He'd
received more than 20 solid plans and couldn't decide which of three
finalists he wanted to fund -- not just for $1 million, but for
as much as $5 million. He has since winnowed the list down to two.
That got us thinking. Why not ask dozens of VCs a tantalizing (but
often unasked) question: What types of ideas would you fund tomorrow
if the right pitch landed on your doorstep? After a few weeks of
trolling Sand Hill Road and beyond, we got 11 leading venture firms
to spill their most promising business ideas -- and to pony up $50
million in funding to the entrepreneurs who can pull them off.
Touching on industries from health care to middleware, these startups-in-waiting
are described in the following pages. If you think you have the
right plan for one of them, send it to the VC who's cheerleading
that idea; each has included an e-mail address. In a few months,
we'll report back on which, if any, Business 2.0 readers got the
cash.
Ready? Good luck. Oh, and if you should strike it rich, don't forget
who brokered the deal. We're not asking for a commission, but we
certainly wouldn't complain if you reinvested a bit of your windfall
in a lifetime subscription to Business 2.0.
$5M Mobile ID for Credit Card Purchases
WHO: John Occhipinti, Woodside Fund, Redwood Shores,
Calif.
WHO HE IS: A former executive at Oracle and Netscape,
Occhipinti is a managing director and security specialist, leading
investments in BorderWare and Tacit.
WHAT HE WANTS: Fraudproof credit card authorization
via cell phones and PDAs.
WHY IT'S SMART: Credit card fraud is more rampant
than ever, and consumers aren't the only ones feeling the pain.
Last year banks and merchants lost more than $2 billion to fraud.
Most of that could be eliminated if they offered two-part authentication
with credit and debit purchases -- something akin to using a SecureID
code as well as a password to access e-mail. Occhipinti thinks the
cell phone, packaged with the right software, presents an ideal
solution. Imagine getting a text message on your phone from a merchant,
prompting you for a password or code to approve the $100 purchase
you just made on your home PC or at the mall. It's an extra step,
but one that most consumers would be happy to take to safeguard
their privacy. More important, Occhipinti says, big banks would
pay dearly to be able to offer the service. "It's a killer
app no one's touched yet," Occhipinti says, "but the technology's
within reach."
WHAT HE WANTS FROM YOU: A finished prototype application
within eight months. "I'm looking for the best technologists
in security and wireless, the top 2 percent in their industry,"
Occhipinti says. The team would need to be working with a handful
of banks and merchants ready to start trials, in hopes of licensing
the technology or selling the company.
SEND YOUR PLAN TO:
jco@woodsidefund.com
$7M BACK-OFFICE BANK SYNDICATE
WHO: Philippe Cases, Partech International, San
Francisco
WHO HE IS: Cases and his colleagues have long made
smart bets in technology, backing innovative firms like Cadence
Design Systems, Informatica, and Vignette. Partech currently manages
more than $850 million in venture funds.
WHAT HE WANTS: A startup that converts proprietary
software applications from large banks into a co-op IT service for
participating members.
WHY IT'S SMART: Major banks spend $25 million a
year upgrading and maintaining custom back-office software to handle
tasks like mortgage applications, loan approvals, and clearing checks.
Yet across the industry, 80 percent of those applications are nearly
identical. The fix: Persuade banks to turn over their proprietary
code to a team of software buffs who will repackage and debug the
apps and then sell them as a subscription service to participating
members. Cases thinks banks could save as much as 40 percent of
their IT costs; the startup that can pull it off, he estimates,
is looking at a $500 million market per application.
WHAT HE WANTS FROM YOU: First, you'll need the
technical chops and engineering talent (with a team of 10 people
or less) to rework all that software code into products more easily
managed by the banks. Second, it's important to persuade one or
two major banks to partner with you to get the project moving --
no easy task, considering that banks are notoriously risk-averse
when it comes to tinkering with mission-critical systems. "It
doesn't have to be their entire suite of banking apps," Cases
says, "but enough to prove out the model and rope in the rest."
SEND YOUR PLAN TO: pcases@partechvc.com
$5M THE ULTIMATE ONLINE UPSELL
WHO: Greg Martin, Redpoint Ventures, Los Angeles
WHO HE IS: Martin handles communications and digital
media investments for the venture firm, which has recently scored
with portfolio companies like MySpace and Topspin.
WHAT HE WANTS: Software that makes better product
recommendations to online shoppers.
WHY IT'S SMART: Amazon may have been the pioneer
in so-called collaborative filtering -- matching online customers
with products they'd be likely to buy -- but by no means has it
mastered the discipline. The percentage of buyers who make recommended
purchases online is abysmal. "It's about 3 percent for major
Web retailers, and for most other merchants it's lower than that,"
Martin says. Software that can better sort and sift customer data
and increase the conversion rates by just a percentage point or
two, he says, would generate a healthy business. Beyond Amazon,
after all, thousands of online merchants still don't have access
to such tools. "There's a lot of information out there that's
being ignored," Martin says.
WHAT HE WANTS FROM YOU: A group of no more than
10 people to tinker with and refine the algorithms to make online
purchase suggestions more efficient. Says Martin, "I'd want
to see the technology working, with a few customers onboard."
The next phase if all goes well? Developing algorithms for websites
to serve up more relevant ads.
SEND YOUR PLAN TO: gmartin@redpoint.com
$5M SUBSCRIPTION PCS FOR SENIORS
WHO: John Zagula, Ignition Partners, Bellevue,
Wash.
WHO HE IS: As a top marketing exec for Microsoft
Office from 1992 to 2000, Zagula helped it grow from a $50 million
product to a $10 billion industry standard. In 2000 he joined Ignition,
which manages $300 million in venture funds.
WHAT HE WANTS: PCs tailored for senior citizens,
who would rent the machines on a monthly basis.
WHY IT'S SMART: By far, seniors make up the fastest-growing
demographic in the United States; their numbers will swell to more
than 70 million by 2030, when they'll make up 17 percent of the
population. They're also going online in record numbers, despite
the fact that many seniors find PCs too complex to use.
Zagula thinks the answer is a stripped-down PC that runs on Web-based
applications, each tailored to make the most popular features --
e-mail, instant messaging, photo sharing, bill paying, gift shopping,
prescription ordering -- as easy to use as hitting the "On"
button. Leasing the machines for $30 or so per month would be attractive
to seniors who are reluctant to buy. Retirement communities might
lease them en masse (as part of tenants' monthly fees), and the
AARP could offer them to its members at a discounted rate. "Any
easy solution will be hugely differentiated, given how much the
software industry seems addicted to adding complexity," Zagula
says. "My mother-in-law is the customer. She's a terrific person
with ample discretionary income. And her need is clear: She wants
a better means of gossiping with all her friends."
WHAT HE WANTS FROM YOU: You and a team of four
or five programmers need to develop a handful of Web applications
with a senior-friendly format to make them irresistible. Zagula
expects the initial funding to pay for limited trials.
SEND YOUR PLAN TO: info@ignitionpartners.com
$3M AN EVEN SMARTER SMARTPHONE
WHO: Ryan Floyd, Storm Ventures, Menlo Park, Calif.
WHO HE IS: Floyd is a founding partner at this
five-year-old Sand Hill Road outfit, which recently launched a $220
million fund focused on early-stage tech firms.
WHAT HE WANTS: A clever resurrection of the smart-card
concept: a software platform for cell phones that allows consumers
to make purchases or open doors by waving their phones in front
of tiny infrared or RFID readers.
WHY IT'S SMART: Smart cards turned out to be pretty
dumb -- at least in the United States, where consumers resisted
the notion of carrying yet another piece of plastic. Floyd believes
it's time to bring back the technology, only this time make the
cell phone the magic wand for transactions. NTT DoCoMo already offers
a similar service in Japan, where consumers make convenience store
purchases by waving their phones over checkout readers. Is the U.S.
market ready for it? Not yet, Floyd says, but if you start now and
it takes off, you could own the business.
WHAT HE WANTS FROM YOU: A prototype application
that works with several phones and checkout systems. Floyd estimates
that a team of 10 can complete the software and show how existing
credit card readers in stores could be retrofitted cheaply with
IR or RFID chips. Who's the ideal leader of the team? Says Floyd,
"The best scenario is you pull someone out of Visa, MasterCard,
or PayPal (PYPL)."
SEND YOUR PLAN TO: ryan@stormventures.com
$3M OPEN-SOURCE IT CENTER
WHO: Matt Miller, WaldenVC, San Francisco
WHO HE IS: A former exec at Oracle and Remedy and
now general partner at WaldenVC, Miller got a sixfold return on
his investment in Niku, an IT software vendor that was acquired
by Computer Associates for $350 million. The firm completed nine
deals in the past year, including a $5 million placement with Shawn
Fanning's Snocap and an estimated $13 million buyout of ritzy San
Francisco retailer Gump's.
WHAT HE WANTS: A startup that can create a suite
of open-source applications for maintenance and upkeep of a company's
IT backbone. It would give away the programs to corporate clients
but charge for service and upkeep at a substantial discount off
current rates.
WHY IT'S SMART: Despite IBM's push to develop cheaper
open-source offerings for back-office IT, Big Blue, Hewlett-Packard
(HPQ), and others still rule the market with pricey software packages
and even pricier maintenance contracts. According to Miller, a comparable
open-source alternative -- for tasks like network management and
help-desk queries -- would be an immediate hit with budget-conscious
midsize firms willing to take a chance on a newcomer. Customers,
Miller adds, would get access to the source code and a set of development
tools, making the programs much easier for IT managers to customize
and upgrade and slashing long-term costs even further.
WHAT HE WANTS FROM YOU: A team of five to seven
open-source developers that can create a handful of back-office
applications within a year, along with a couple of major clients
willing to put them through trials.
SEND YOUR PLAN TO: matt@waldenvc.com
$3M SOCIAL NETWORKS MEET THE TOWN CRIER
WHO: Jim Lussier, Norwest Venture Partners, Palo
Alto
WHO HE IS: A former exec at Accenture and Beyond.com,
Lussier handles software and services for Norwest, which manages
$1.8 billion in venture funds and won big with investments in PeopleSoft
(PSFT) and Tivoli Systems. Lussier led recent deals with travel-services
company G2 Switchworks and P2P radio broadcaster Mercora.
WHAT HE WANTS: A kind of souped-up Craigslist for
every neighborhood, everywhere. Just type in a zip code, and this
website will present not just garage sale listings and classified
ads, but headlines and photos from dozens of local news sites run
by busybodies willing to provide free content and keep it constantly
updated.
WHY IT'S SMART: The idea taps into the same social-networking
allure that helped make Flickr a $35 million Yahoo (YHOO) acquisition
-- that is, user-driven content, organized so that all visitors
get a slick stage to showcase their stuff. In this case, the stuff
isn't just photos but local knowledge: updates on a rash of burglaries,
say, or a ranking of preschools. (The most popular contributors
might receive a small percentage of ad revenue.) The site could
also offer a marketplace for everything from baby-sitting to tree
trimming. Sure, a number of regional websites already offer something
similar, but this site would aggregate the content under one umbrella
and provide a platform to scale it across the nation. If all goes
as planned, Lussier says, paid ads could bring in as much as $100
million a year.
WHAT HE WANTS FROM YOU: A website template finished
within six months on a $500,000 budget. (Lussier estimates that
a team of two or three can do the job.) If it shows promise, Norwest
will provide another $2.5 million to tackle the real challenge:
developing a core group of users who can light the viral fire. "Building
that community happens when people get value out of the service,"
Lussier says. "They need to feel compensated for their time
by the information they get back out."
SEND YOUR PLAN TO: jlussier@nvp.com
$2M CUSTOMER SERVICE OVER IP
WHO: Shanda Bahles, El Dorado Ventures, Menlo Park,
Calif.
WHO SHE IS: Bahles has been a venture capitalist
since 1987, a year after $750 million El Dorado was formed. Among
the firm's notable successes are investments in DataSage, EarthLink,
and Novellus Systems.
WHAT SHE WANTS: VOIP-enabled software that merchants
can use to automate and customize phone orders from their customers.
WHY IT'S SMART: Folks who've switched their home
phones to voice-over-IP already know how seamlessly the service
can funnel incoming or outgoing call data to the Web. Retail merchants
are next in line to reap similar benefits. Imagine calling Domino's
and, instead of getting the usual "Hold, please," being
greeted by name by an automated voice, which asks whether you want
the same large pepperoni you ordered last time and whether it's
to be delivered to your work or home address. Software tailored
to run on a merchant's VOIP system could mine all that data while
improving customer service (imagine that) and lowering costs.
WHAT SHE WANTS FROM YOU: To pull off a software
prototype in six months with just three or four people. "Large
teams in a startup have diminishing returns," Bahles says.
SEND YOUR PLAN TO: shanda@eldorado.com
$5M PLUG-AND-PLAY MOBILE SERVICES
WHO: Eric Buatois, Sofinnova Ventures, San Francisco
WHO HE IS: After a 14-year stint at HP running
its telecom strategy in Europe, Buatois joined Sofinnova in 2001
as a partner focusing on investments in wireless. His recent placements
include Upek, a fingerprint-reading technology company, and HelloSoft,
a chip-design company for multifunction phones.
WHAT HE WANTS: What wireless networks have been
craving for years: a single software platform from which they can
launch new servics.
WHY IT'S SMART: Today's networks require a separate
software layer for every service, from text messaging to video,
each with its own protocols and provisioning. The approach is extremely
costly and complex to maintain, given the competition among carriers
to offer more applications that will drive growth and reduce customer
churn. A single software launching pad would allow wireless carriers
to turn services on and off as they see fit and add new ones without
having to reconfigure their networks. It's an opportunity best suited
to a startup, Buatois says, since "this is something the big
infrastructure providers won't do and the wireless carriers and
ISPs can't do themselves."
WHAT HE WANTS FROM YOU: Design the basic software
in less than two years with no more than five developers. Once the
prototype is ready, Buatois would fund a team of 20 or so to market
the product. An obvious consideration: "This is a big engineering
problem," Buatois says, "and there aren't many people
who can pull it off." He'll be looking for people with the
right technical qualifications and experience at companies like
Alcatel (ALA), Cisco (CSCO), or Lucent (LU).
SEND YOUR PLAN TO: eric@sofinnova.com
$8M HOME PATIENT MONITORING
WHO: David Aslin and Paul Badawi, 3i, Menlo Park,
Calif.
WHO THEY ARE: Aslin is a partner in 3i's West Coast
office. Badawi, a former genetic researcher for the National Institutes
of Health, joined 3i last year as an entrepreneurial fellow. 3i
invests $1.6 billion a year in buyouts and venture deals, the majority
in health care and IT.
WHAT THEY WANT: A wireless home-monitoring network
for recuperating hospital patients.
WHY IT'S SMART: No one likes extended hospital
stays. Not patients, not hospitals, and not insurance companies
paying bills that can exceed $5,000 a day. For the critically ill,
there's no way around lengthy visits. But thousands of other patients
could be sent home early if they could be monitored at home or at
a lower-cost facility. Badawi and Aslin envision a wireless transmitter
that would attach to existing hardware such as portable ECG machines
and heart-rate and blood-pressure monitors. The device would send
data through a wireless router to a cluster of back-office servers.
The servers would function like a call center, routing a patient's
vital signs to the right nursing station or on-call physician. Trimming
just two days off the typical 10-day hospital stay for stroke victims
would be a service worth $2.7 billion.
WHAT HE WANTS FROM YOU: Between you and a partner,
you'll need expertise in medical device technology and database
management to get a working demo ready to pitch to HMOs or insurance
companies. Half a million dollars in seed money should be sufficient
to get that far. "It's not the technology, it's the complexity
of navigating the health-care system that's going to be difficult,"
Badawi says. If you can sign up an HMO to test the system, 3i promises
$7.5 million more to bring it to market.
SEND YOUR PLAN TO: david_aslin@3i.com
$4M A KILLER APP FOR CONVERGENCE
WHO: Randy Haykin, Outlook Ventures, San Francisco
WHO HE IS: Before co-founding Outlook in 1995,
managing director Haykin held senior marketing positions at Apple
(AAPL), Viacom (VIA), and Yahoo. The firm's best bets in recent
years include Classmates and Overture.
WHAT HE WANTS: Software that permits any Net-connected
gadget in your home to access and display services like VOIP, instant
messaging, and streaming television.
WHY IT'S SMART: Convergence is happening in fits
and starts with the emergence of devices such as IP-linked LCDs
in refrigerators and souped-up handsets and PDAs that can stream
music and video. What's missing, though, is software allowing the
devices to talk to one another, so you can use one to pick up where
you left off with another on a messaging session, your voice-mail,
or a tune you were listening to. ISPs need to sell the kinds of
services convergence promises, but without software knitting them
together, very little will converge.
WHAT HE WANTS FROM YOU: A prototype platform for
a variety of devices. At least one senior member of your team should
come from a consumer electronics giant.
SEND YOUR PLAN TO: randy@outlookventures.com
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