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Lightspeed Venture Partners Blog

Lightspeed is a leading global VC firm focused on partnering with exceptional entrepreneurs to build high-growth market-leading companies globally.

We’re excited to invest in Casual CollectiveNovember 18

I spent way too many hours playing Desktop Tower Defence last year. When I met Paul Preece, the man who destroyed my productivity for months, and heard that he was working with David Scott, a guy whose game Flash Element Tower Defence had even more gameplays than DTD, I was quite interested in hearing about what they were working on next.

I’m a big believer in applying the principles of web 2.0 to gaming: fast development cycles, user generated content (ie multiplayer games) and a direct to consumer distribution model (often free and viral).

Casual Collective, Paul and David’s new company, is applying all these principles to create a free-to-play social gaming site, and Lightspeed are excited to be seed investors in the company. In addition to the newest version of DTD and FETD, check out some of the new great games there, including the real time naval strategy game Desktop Armada, an addictive social

Facebook’s digital goods revenue $50-60m sources sayNovember 12

In September, I estimated that Facebook’s digital goods sales were on a $35m revenue run rate. Silicon Alley Insider quotes an anonymous insider to say:

Facebook’s revenue this year will be about $265 million, the source says, which is less than the $300 million expected. The source estimates that this is composed of about $180 million of ad revenue, $50-$60 million of virtual gifts, and some smaller revenue items.

I was in the ballpark!

      

More signs of consumer discretionary spending slowdown, online feeling the impactNovember 12

Last month I wondered which companies might prosper in an advertising recession:

Companies that buy advertising (rather than selling it) will find that they can now buy advertising more cheaply than previously.

Ecommerce companies, subscription businesses, lead gen businesses and online game companies are all buyers of online advertising. In the last advertising slowdown, companies like Expedia, Zappos, Quin Street, Lending Tree, Lower My Bills, Netflix, Classmates.com and Ancestry.com were all able to grow to over $100M in revenue by taking advantage of cheap media.

Will history repeat itself in this recession? It is hard to know. Certainly lower CPMs can lead to lower customer acquisition costs if all else is equal. But the difference between this recession and the last one is consumer confidence, which is markedly lower today than in the 2000-2003 time period…

Certainly, consumers are deferring “considered purchases” including homes, cars and other big ticket items. Etailers selling “necessities” that cannot be deferred, such as diapers or business cards, will do fine. The question is what will happen to the demand for small ticket consumer discretionary spending. Starbucks might be considered a proxy for this sort of spending.

So far it isn’t looking good.

Facebook’s engagement ads could be the standard we need for social media advertisingNovember 11

The WSJ today notes that Facebook lags Myspace substantially in ad sales, despite having surpassed MySpace in usage:

[Facebook] … says 70 of the U.S.’s 100 largest advertisers have advertised on its site since 2007. But its share of total number of U.S. online display ad views was just 1.1%, according to market research firm comScore Inc., in its most recent report in June.

News Corp.’s Fox Interactive Media Unit, which includes rival MySpace.com, is the market leader with 15.9% of display-ad spending, according to comScore.

I believe that this is because most of the ads the Facebook sells are not standard units, unlike most of the ads that MySpace sells. As I’ve mentioned before, new forms of advertising are hard.

However, I am excited about the new engagement ads that Facebook is now selling:

The Palo Alto, Calif., company is rolling out a new ad for

Founders, be ready for the long haulNovember 10

The chart below shows the average time in years between a startup’s first equity investment (usually Series A) and its sale, for companies sold in each year from 1997 to 2007. (Source is Dow Jones Venture One/E&Y study)

As you can see, companies sold in 2007 had seen almost seven years pass since their first financing. Often they were founded up to a year before they took their first financing, so they were likely eight years old when they were sold. These numbers are averages - some companies exit faster, but some exit slower as well.

This data represents M&A exits. Usually the time to exit via IPO is even longer.

Although no data is available yet for 2008, there has been virtually no venture backed IPO activity in 2008, and the number of M&A tractions is sharply down from previous years. That means that the time to liquidity is likely getting longer.

Obviously, these are backward looking metrics (2007 numbers refer to companies that were sold in 2007, not companies that were started in 2007). However, founders of companies looking to raise venture capital should be ready for the long haul. You can’t start