Need venture capital? Trends for 2009

    venture-capital-silicon-valleyWith all the news about the world-wide credit crisis, I have been wondering how the Bay Area’s venture capital market has been doing.

    I get the Bay Area Tech Wire delivered to my inbox daily and today’s announcement that Santa Clara-Based raised $25M for their online textbook rental business. I can vaguely remember my college years and do recall the high costs of textbooks…but $25 million for textbooks à la Netflix-style?

    So I dug a little deeper into the state of venture capital here in Silicon Valley.

    The National Venture Capital Association did release their 2009 outlook report today in which they surveyed 400 venture capitalists across the US. Ninety-two percent of them expect investments to slow down in 2009 as the economy continues to shrink. Sixty-one percent of folks believe that this contraction will be greater than 10%.

    Amidst the bad news there were some indication of areas of opportunity for venture capital funding.

    Despite lower investment predictions across all industry sectors, clean technology is viewed by the highest percentage of respondents as potentially growing in 2009 with 48 percent predicting increased investment and 20 percent predicting unchanged investment. The life sciences sector offered the second highest promise for investment stability and/or growth. Twenty-five percent of respondents believe biotechnology will increase and 33 percent predicted stable investment. In the medical device sector, 24 percent believe investing will increase while 38 percent predict stable investment. The strongest consensus for investment decline is predicted for the semiconductor industry with 79 percent expecting a decrease in investment. Media/entertainment and wireless communications investing are also expected to decline with 71 and 60 percent of all respondents predicting slowdowns in those sectors respectively.

    Source: National Venture Capital Association Press Release, December 17, 2008.

    I took a closer look at and they do have a couple of trends working in their favor.

    • Generally in a down economy, more people do go back to school.
    • Cost savings is important and besides tuition, textbooks make up a large portion of college expenses. Rental of books is a very attractive option for parents and students looking to save money.
    • On their website, they also play up the green angle. No doubt, paper is a resource intensive commodity to produce and renting textbooks is a way to “Reuse”.

    After digging deeper, I am still amazed that Chegg garnered $25M in their third round of funding. However, if there is such opportunity in textbook rentals, why isn’t Netflix moving on this?

    Netflix has a great platform for renting “things” (in this case, movies) and a platform they have built for peer recommendations and commentary. Even a close sister to DVD movies, video games.

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