Docstoc, LitCentral : Social networking and getting work done is a free social networking site that allows users to share documents in any format (word, excel, powerpoint etc.). The social networking component comes in with allowing users to rate documents, making it sound like a Digg equivalent of document sharing.

The product from Los Angeles based Docstoc, is currently in Beta, and according to AlarmClock, has just raised its first round of Angel capital.

The product is geared towards a exchanging of information in the business arena, with legal and financial templates built in, as well as catering to the education space with the appropriate formats provided for document exchange. Creative writing is also targeted.

Techcrunch reports that the beta product has been well received (as indicated by the beta testers).

Another company, LitCentral, based in Temecula CA, has created a web based script management system, specifically targeted towards the movie industry. The software provides users with a way to communicate with each other, and allows script writers to collaborate on projects.

LitCentral also has a business to consumer product for rating entertainment related products - movies, music, gaming etc. LitCentral is seeking funding.

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The Venture market: Is there trouble brewing at the exit?

exit signPeople are wondering if the mega buyout party is coming to a close.

The private equity and debt market have been been in bed, for a little while, and it was looking to be a cozy relationship - like that of two people who sorely need each other. Large buyout funds were using the arbitrage opportunity between debt and equity, and easy access to cash, to fund large deals.

Now, one of the partners is not so rich, and not so free wheeling, anymore. With the sub-prime snafu in the debt market, LBOs are finding themselves up against the wall as far as access to easy debt capital.

The doomsday scenario is already starting to play out a bit, according to WSJ. Two anticipated IPOs in the hedge fund business, Man Group and MF Global fared less than, well, stellar. Both fell short of their targets in initial raise.

Then there was Blackstone and their spectacular IPO (highest ever for a Fund). That IPO is also finding itself in the doldrums, now.

So what does all this mean for the venture market? Used to be that start-ups that fared well, would go one of two ways. They would have an IPO on Nasdaq, or they would get bought out by larger companies, which in turn have been snapped up by large hedge funds in recent years.

First came Sarbanes-Oxley, and taking a company public became like a political race. You couldn’t go to the party unless you had really rich parents. Worth about $500 million and up. Some companies dodged the bullet by staging an IPO on AIM, the London stock market, where it costs 60% less to IPO. Nasdaq certainly became a less attractive option for all other than the well heeled and the brazen.

Then came the LBOs and a wave of, we hope, rational exuberance. Suddenly venture firms could see the “Exit” sign in the distance. The money started flowing into start-ups again.

Now there are rumblings of discontent in the private equity arena. If the deal flow slows down, it could affect the venture market, which is down the financial food chain.

There is also the dynamics of the venture funds raising capital. The PE funds are the pick of the litter there. Large pension funds such as Calpers, which invest in PE and VC funds, prefer to place larger amounts of money since, as they see it, it is about the same amount of work for them (in due diligence etc.) to invest $5 million in a fund, as it is to invest $100 million. So late stage funds have an easier time raising funds, than early stage funds.

In principle, one would assume, that if the PE funds were to fall out of favor, smaller venture funds would swoop in and pick up the extra cash. But I don’t think that is going to be the case. If there is a perception that the pipe is choking up at the exit, it will affect all sizes of funds, in their ability to raise and deploy capital.

So far, the numbers show an upbeat picture in venture land. The large companies like Google and Cisco which have been snapping up start-ups in the last few years (this year, Google surpassed Cisco in venture backed acquisitions - 5 versus 4 as of early June), aren’t that sensitive to the capital markets, as long as they keep growing and hitting their numbers. This year, the total volume of mergers and acquisitions in the first half of 2007, was above a $1 trillion, an overall record according to Dealogic.

Notwithstanding the shenanigans in the hedge fund IPO business, the market for Venture backed IPOs continues to hum. Venture backed IPOs raised $2.73 billion for 22 companies that debuted in the second quarter of 2007, an up higher already, than all of 2006.

It is not clear if there is trouble brewing further down the road, but so far, venture traffic continues to move along smoothly.

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What valuations/ exits are VCs looking for?

The question is often asked, what is considered a “good return” when there is an exit in venture land? Here are some rough guidelines for early stage companies, along with some “VC-speak” that you might hear, when such exits are discussed.

1. Company exited at 0-1x (ie 0 to 1 times the money invested)
“What company? What investment?”

Nobody made money. Founders are broke.

2. Company exited at 1-2x
“We broke even on that deal”

This is not the deal that the VCs are going to brag about.

Generally VCs have “liquidation preference” clauses which mean that they get to take out their money first. Very likely the investors made nothing after the debts were paid off. Founders are, very likely, still broke.

3. Company exited at 2-5x

“We had a good exit”

VCs made some money. Founders made some depending on how good they were at ironing out the initial term sheets. The founders are planning their next venture. Unless the numbers were large, this is not enough to retire on.

4. Company exited at 10x and above

“I told you this was going to be the next Facebook!”

This is the 1 in 20 or so “make the fund” deals that funds hope and pray for.

VCs are entitled to crow, and they do! Everybody is happy - mostly.

Side note for entrepreneurs on valuation: When presenting a business plan, if you are showing a company that is going to be worth 2x in 3-4 years, then it is time to go back and look at the market size and other factors. Most investors will beat a fast path to the exit sign unless they can be shown an expectation of about a 10x or more, or more on their investment, in 3-5 years.

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New wave of funding making Twitter chirp louder

twitter logoTwitter stated in its blog that it has raised a round of funding from Union Square Ventures. Earlier investors were Charles River Ventures, and angel investors Marc Andreessen, Dick Costolo, Ron Conway, and Naval Ravikant.

Apparently Twitter has a big fan following, including Robert Scoble of the Scoble show, who wrote the words Twitter Rocks in the sand and sent the Twitter guys a photograph.

We talked about Twitter earlier. We even had a Twitter box in the side bar of this blog for a little while, for asides and quick comments. It is a neat application but we found the 140 character limit too restrictive for writing anything meaningful. Although you can write longer chirps, the comments can’t be embedded in their entirety in your web page. You still get to see only the first 140 characters, and then to get to the rest, you have to visit the Twitter page.

While Twitter will probably continue to be popular with people who want to send quick phone updates of where they are and what they are up to (to the Twitter home page or to their own web site), it will not become a big way for people to share thoughts or ideas. In that arena I expect to see more of the pc to pc or mobile to pc multimedia conferencing, like the application built by AVAMobile, which we reviewed earlier.

Twitter is a nice gizmo, but that is about the extent of it.

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