Last quarter, based on funding and M&A data we collect in CrunchBase, we signaled that we were cautiously optimistic about the rebound of the tech sector. Q2 trends were no worse than Q1 09: venture financings were up 20% and mergers & acquisitions held steady (excluding Oracle’s acquisition of Sun Microsystems) in comparison to Q1.

With another quarter of data under our belts, we’re feeling even better about the health of technology startups. The number of new startups, venture fundings and M&A are all on the rise. In addition to decent stats, there are lots of new tech products launching across diverse categories, coming from companies both great and small. The Layoff Tracker and Deadpool have quieted down in our sector. In short, we’re feeling like there’s a more rational and focused market for startups and tech.

Strategic M&A Is Back: 3x Q2 Levels

One of the strongest signals of the quarter was the resumption of activity in mergers and acquisitions. The acquisition market really rebounded in Q3 09 to over $45 billion from 231 deals, 3x greater than Q2’s $15 billion. We haven’t seen M&A activity at this level since Q2 08, which recorded 275 deals totaling $59 billion.

Why? Large internet and media companies have faced significant R&D budget cuts in the last year, but they recognize that they need to grow to remain competitive. The weakness in the overall economy and the pullback in venture investing dragged down exit valuations. At more rational prices, large companies see acquisitions as a good use of cash. And the target acquisitions have slashed their own cost structures over the last year and proven they can grow through the downturn, making them even more attractive.

Most encouraging, acquirers are adding strategically to their businesses (Amazon-Zappos, Facebook-Friendfeed, Google-On2, Yahoo!-Xoopit, VMWare-Springsource, RIM-Torch Mobile, Intuit-Mint, etc.) Some acquirers are returning to the market with multiple strategic deals (Adobe, EMC, IBM, Thomson Reuters, Yahoo!, Google, etc.) Deal making was well distributed across business segments (consumer web, retail, mobile, advertising, enterprise, biotech, cleantech)

Deal-making was highly targeted during the quarter. For example, there wasn’t a big rumor mill about deals being shopped to multiple target acquirers. Instead, it appears that many individual deals came together for the right strategic reasons at rational prices and were executed promptly. In many cases, leading acquirers appear to be making preemptive moves for attractive assets, so they don’t risk competitors taking the deals or paying up as valuations rise in the future.

Q3 Venture Financing Is Up 17.5%

Venture investments increased 17.5% to $7.7 billion in Q3 09, from $6.5 billion in Q2. Q3 09 data is on par with the numbers from Q3 08. The most recent peak period was Q2 08, which had 859 deals totaling $8.5 billion. The most recent trough was Q1 09, which had 609 deals totaling $5.5 billion.

Along with the increase in venture financing, the quantity of deals financed was up 11.4% quarter-to-quarter. The number of financings is also on par with the number of deals from a year ago.

Q3 New StartUps Up 25%

CrunchBase estimates that 985 startups were founded in Q3 09, up 25% from Q2. This is based on 241 actual records submitted for Q3 vs 191 for Q2, and extrapolated for delays in startup self-reporting of data. We expect the rise is a bit seasonal and partly attributable to the growth of incubators and fall launch conferences, such as TechCrunch50, where large numbers of startups launch at once.

The full 40-page third-quarter TechCrunch Trends report (including 30 interactive excel exhibits and 59 PDF graphics) is available for $295 as a download here.

This quarter, we added a leaderboard of the 25 most active venture capital firms for Q3, including deal breakouts by round and business sector. If you’re looking for funding, the tables in this report might help you narrow your search.

Trends Table of Contents here.
Data Pack Excel Exhibit List here.
Trends Report Graphics List here.

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Of course, you’re also welcome to grab the data free of charge through our CrunchBase open API. CrunchBase is the largest, free directory of statistical information about startups and technology businesses. We track over 24,500 companies (including 8,700 financings and 2,300 acquisitions), 40,400 people and 3,200 financial organizations.

Check out TechCrunch Trends, our newest TechCrunch-family blog, covering, yup, the latest technology trends sourced through CrunchBase. Daniel Levine and other TechCrunch staff will be adding cool new trends there on a regular basis.

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Q3 2009 TechCrunch Trends: Venture Funding Up 17.5%, M&A Rebounds Even More

Most businesses look for a good mix between value and performance for the hardware they lock in the server closet, the majority of those leaning toward the “value” side of the equation. However, for those companies that dodged the economic downturn entirely and want only the best, there’s the FlashFire storage array from Sun. It’s 2TB of rackmountable bits able to perform 1.6 million read and 1.2 million write operations per second, with a sustained throughput of 12.8GB/sec. Sun says these are records, and we can’t find anything to refute them, the closest being the RamSan-440 from Texas Memory Systems, offering an (until very recently) impressive 600,000 I/O operations per second with a 4.5GB/sec throughput. TMS, it’s been brought.

Filed under: Storage, Networking

Sun FlashFire’s record-breaking storage performance will make network admins giddy originally appeared on Engadget on Wed, 14 Oct 2009 08:33:00 EST. Please see our terms for use of feeds.

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Mårten Gustaf Mickos, former CEO of MySQL, is Benchmark Capital’s newest Entrepreneur In Residence (EIR).

Mickos served as chief executive officer for the open source database company from January 2001 to February 2008, when Sun Microsystems acquired MySQL for $1 billion. Benchmark was a relatively early investor in the company; they participated in the $20 million Series B round together with Index Ventures back in 2003.

Mickos holds a M.Sc. in technical physics from Helsinki University of Technology and is also a board member of Mozilla Messaging and RightScale.

In the tweets announcing the move, Mickos says he likes Benchmark because they care about the needs of entrepreneurs and because they can ‘think big’. He will be joining Keith Krach, Mike Cassidy, Bret Taylor, Jim Norris, Dan Finnegan, Sarah Leary and Nirav Tolia as EIR at the Silicon Valley VC firm, which is behind a number of high-profile investments in web startups like Twitter, Gigya, Prosper, OpenTable, Mint.com and FriendFeed.

Anyone care to venture a guess as to when Mickos’ next Benchmark-backed startup will see the light of day?

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Former MySQL CEO Marten Mickos Joins Benchmark As Entrepreneur In Residence

In venture capital, Vinod Khosla likes to go his own way, which is why he’s been so successful. He was the founding CEO of Sun Microsystems, and then moved to venture capital and became a star partner at Kleiner Perkins, where he backed Juniper Networks, Cerent (sold to Cisco for $7 billion) and NexGen (sold to AMD and formed the basis for its challenge to Intel). About five years ago, after becoming a billionaire, he left Kleiner and started Khosla Ventures to invest his own money. He was mostly drawn to clean tech at a time before it was popular, but still kept his hand in Web and other tech startups (Aliph|Jawbone, iSkoot, RingCentral, Tapulous, iLike, Slide, Xobni). Khosla Ventures already has more than 50 companies in its portfolio (see slides below).

Earlier this month, Khosla raised $1.1 billion for two new funds, taking money from outside investors for the first time. I spoke with Khosla on the phone about his new fund, his approach to investing, clean tech and more.  He compares Web startups to water startups, dismisses entrepreneurs who think about exits before building value, and contends that cleantech companies can command as high margins as hardware or software companies.  “It’s a business strategy decision,” he explains.”

In the interview, Khosla talks about his investments in Aliph, RingCentral, eASIC, iSkoot, and Xobni. In terms of what he’s looking for, he declares “we love material science.” And in his seed fund, in particular, he says, “We’re not looking for completeness in things. We’re not looking for business plans. We are not looking for meeting every fiduciary requirement of an investor. We are looking for great technical ideas and great technologists.”

The 25-minute interview and full transcript are below. I’ve bolded parts for emphasis.

Interview Transcript

Mr. SCHONFELD: Well thanks for taking the time to speak to me. You just recently raised a pretty large fund or actually a couple of funds, right, $1.1 billion for two new funds. And I believe this is the first time you really took outside money. Can you talk a little bit about that whole fund-raising process and why you decided to reach to outside investors?

Mr. KHOSLA: I think my general feeling is the scale of the opportunity we see is pretty large. You know, when I started doing things on my own, I was figuring – remember it was a very nascent market. And there was a lot that was unknown about the renewable marketplace in 2004, early 2003 when I was planning on it. The world does change for the better. Much larger opportunity set and it probably requires, you know – there’s more opportunity than I would have thought five years ago.

Mr. SCHONFELD: Right. Now, you have been really focusing on this area specifically for five years. While still, you’re still making an investment in more traditional web companies and the type of technology companies you’ve been investing in for years. But can you just tell me a little about the difference in the dynamics between the companies that are renewable energy companies versus the companies that our readers probably are more familiar with, web companies and hardware and even chip companies.

Mr. KHOSLA: Yeah, still…

Mr. SCHONFELD: There seems to be a disconnect, even in the Valley, between the cultures of these two types of tech companies.

Mr. KHOSLA: You know, I find that a pretty narrow view on behalf of people who sort of repeat that, I’ll call it a platitude for now. In the following sense, if you look at a venture firm like Kleiner Perkins and look at their portfolio, I would guess that 20 percent of the portfolio —and this is before renewables—ends up in things that are purely capital-intensive like biotech. 20 percent ends up in really capital-intensive stuff like biotech. 20 percent ends up in capital-light things like a Web start-up, let’s say, taking less than $30 million. So, 20 percent will take less than 30, 20 percent will take more than 300. And then the remaining 60 percent ends up in the middle taking, oh, you know, the bulk of the portfolio in venture takes between $30 million and $75 million or a hundred million. I think the profile in renewables will look exactly the same. And so, if you’re a broad-based venture firm and you do biotech and you do some of the capital-intensive projects, your renewable portfolio will not look that different.

Not everything in the world is building power plants or build biofuel facilities. There are plenty of things that are in the middle.

So if you’re doing LED lighting, it is just like a chip start-up. If you’re doing a new air-conditioner, it’s like a small equipment start-up, or telecom gear start-up. If you’re doing water, it’s like a Web start-up, at least the ones we’ve done.

Mr. SCHONFELD: How is a water startup like a Web company?

Mr. KHOSLA: Well, for 15, 20 million dollars, they’ll have products in the marketplace and be able to be cash flow positive. Less than $25 million, I would guess, because they’re making membranes. Then you make a membrane, they put it into existing systems. Now, they could have a capital-intensive model and build a desalination plant but they’re not going to. They’re going to build a membrane that goes into existing desalination plants. And so, it’s a very simple model and in all those – in almost all these cases that opportunity exists. Even in the extensive biofuels area, where you’d think it’d be very capital-intensive, you know, it’s easy to cut deals like LS9 announced one with Proctor & Gamble. That’s publicly announced. You can look that up, and make sure it is capital-light. There are companies that are pursuing licensing strategies that are also relatively capital-light.

MR. SCHONFELD: Already you have what, about 50 companies in your Khosla Ventures portfolio, somewhere around there? MR. KHOSLA: More than that. I don’t know the exact count but yes, more. Well above 50.

MR. SCHONFELD: So the new fund will be used for follow-on investments to the existing portfolio as well as new ventures or is it – or the existing portfolio is already taken care of with the capital allocated to the previous funds? MR. KHOSLA: Well, both of the funds will be new investments. But there are provisions for existing portfolio companies to get in, you know, we’re not going into the details but the bulk of the funds will be new investments.

MR. SCHONFELD: And do you see going forward the mix being pretty much the same? It seems like it’s two thirds clean tech and one third more traditional tech. MR. KHOSLA: Yeah. We do expect the mix in the future to look similar to the mix we’ve had in the past.

MR. SCHONFELD: Let’s take both of these techs one at a time. So, the Clean Tech companies are – are these located all over the place? Are these Silicon Valley companies and what’s your criteria for investing in these companies? I mean, at first glance a lot of these companies seem like material science companies or companies that other investors maybe wouldn’t even look at or would pass on because it’s not – it’s not a familiar model to them, right? So, you’ve invested in a lot of technology companies. Obviously, the problems they’re trying to address are large, but in terms of the actual business model and economic models of these companies, where’s the leverage?

MR. KHOSLA: Well, you know, first because it’s a diverse area and there’s no one business model. There will be a range of business models that will be used and will make sense and just like any other tech start-up, these companies are run by entrepreneurs who are pretty damned adaptive. You know, they’ll move pretty quick and adapt to whatever the environment says.

MR. KHOSLA: If the market changes, the money is available or the money is tight, they adapt to that. These things entrepreneurs do all the time. You saw that in the dot-com thing. There were people who could use a hundred million in the dot-com, and people who could adapt and go back to running on a million dollars a year. We saw that in dot-com companies and I think the same is going to be true in this space. And because the space is so large you’ll see a lot of diversity in the range of business models. I forgot the first part of your question.

MR. SCHONFELD: I can rephrase it. What are you looking for when you’re going to make investments in this area, what are the key…

Mr. KHOSLA: To your question, we love material science. We love serious technology innovations and there is a strong bias towards large technology innovations that are sort of disruptive to the current market. And that is very much a charter of what we are doing and we don’t mind larger technology risks especially in the smaller seed fund, which is really geared towards science experiments, which other people generally, as you say, won’t do.

The main fund will look like any venture fund and we’ll invest like any other. We’ll do seed, A and B and C investments. And there the risks probably will be a little less of the speculative stuff the seed fund might do. And I agree with you, there will be fewer people in the domain of the seed fund but the seed fund will do things that take a million dollars here, our $2 million there to roll out a really radical technology idea. And then it becomes a regular business plan.

In that stage, in the seed fund, we’re not looking for completeness in things. We’re not looking for business plans. We are not looking for meeting every fiduciary requirement of an investor. We are looking for great technical ideas and great technologists and yes, lots of PhDs in hard-core science disciplines.

Or just wild ideas that sort of have huge upside potential and sometimes may not need a radical technology breakthrough. So Xobni, which we did in e-mail , is an example of something that would be—in IT that fits into the seed fund because it’s a wild idea to do e-mail in this day and age. It has gotten great traction. So, that’s what we are looking for in the seed fund. In the main fund, we look for more complete management teams and more complete technology.

Mr. SCHONFELD: But for Xobni, that seems at first like the opposite of what you’d be looking for because a lot of people might think that e-mail is done although obviously, it has a lot of problems.

Mr. KHOSLA: Well, in fact I would say most people wouldn’t invest in e-mail because they think e-mail is done. In that case, it was an idea that we thought compelling and without going into the details, users have adopted it and used it enough to prove to us that it is compelling. And so all I’m saying is, we will do non-technology IT stuff in the seed area. We’ve just done another seed that I won’t mention but it’s not renewable but green, it’s just a great idea in a completely wild space that most VCs wouldn’t even think of touching. But it’s a regular technology start-up. And hey, great, so we are open minded on what we are looking for. On the green side, generally it should focus on the technology, technologist, a breakthrough innovation, not just a minor iteration.

Mr. SCHONFELD: Looking at your portfolio, overall which of the companies are the most mature? Have you had any, have there been any exits from the portfolios so far or -

Mr. KHOSLA: You know, we’ve had some – we’ve had a couple of sales and I don’t know which ones we’ve talked about publicly. They’ve been OK, good returns. So, you know, on average sort of a few times our money. Nothing I’d call a home run today but in terms of maturity, obviously, Aliph or Jawbone is a pretty exciting start-up for us. You know, a couple of, sort of nine digit revenues and cash flow positive and all the things you’d look for in a mature company. And you know, and so, eASIC is doing pretty well in semiconductors, we’re happy with that. Let’s see, iSkoot is doing really well in the mobile space. I’m trying to pick different areas.

You’ take something like RingCentral. It doesn’t need any more money or financing, it is relatively mature recurring revenue business – not really worried but you know, we could sell it tomorrow. We have not been in a rush to sell it. We don’t care about exits as much. We care about building fundamental value. So, in that sense we are a little bit different than other investors. Our focus is not on exit. In fact if you talk to any of my entrepreneurs, I’m generally saying don’t sell the company when other investors want to sell. I’d much rather focus on building long-term value in building companies rather than worrying about exists.

In fact, here is the thing, if a business plan talks about exits in the first two or three pages, I throw it out of the basket because I think, culturally it’s the wrong kind of entrepreneur for us. I literally if they talk, or mention exits in the first, say, in the executive summary or the first three pages of a business plan, it’s two strikes against them right there because I’m not interested in people where exit is top of mind. We care about building companies and building values. And that’s sort of the kind of culture we’re trying to do at Khosla Ventures.

Mr. SCHONFELD: Right, so, what advice would you have for entrepreneurs who you know are looking at different options? I mean, when is the right time to sell and when is the right time to keep going?

Mr. KHOSLA: You know, we could sell Aliph today. We could keep the cash flow positive company going. I’d rather take it towards an IPO. RingCentral is cash flow positive, going, you know, over a 100,000 small businesses as customers. We could sell it today but I still think, there’s time to generate value. It depends on what’s going on internally. If there’s good growth prospects and more value to be built then you go build that value instead of trying to get an exit. Wide Orbit is cash flow breakeven and sort of mature. You’d call it a mature company by venture standards, we’re not interested in, you know, getting out. Now having said that, if somebody comes with a great offer, we’ll always look at it. You know, we’re not opposed to exits. All I’m saying is it’s not the first thing we worry about. We worry about building value and building companies.

Mr. SCHONFELD: Right. And so what should entrepreneurs take from the fact that you were able to raise this $1.1 billion fund which I think is – it’s two funds but it was a sort of a single raise, right? Which I think is the biggest in several years. Is that just because you’re Vinod Khosla or do you see something – you see some -

Mr. KHOSLA: You know, I think the message is there are plenty of me-too two investors and there’s good investors around and money from – new money for that kind of thing is tight. But if you’re trying to do something different like we are, then investors, limited partners are willing to put up the money for it. I mean, and there’s definitely, we’re very active with new investors. We’re looking for ventures and our LPs just want us to take the risk for a file I just talked to you about. And there is appetite for risk.

Mr. SCHONFELD: Do you think that we’re going to be seeing more money flowing into venture capital? There’s been a big debate as whether there’s been a reset or not, you know, for investments going to venture capital and you know, just the whole financial crisis and how that impacted limited partners and how big institutions, you know, are rethinking their allocation to venture as an asset class. Is this an anomaly or -

Mr. KHOSLA: You know, my bet is big institutions will continue investing in venture capital but they’ll be more selective. But I don’t think, you know, frankly, we could have raised a lot more money if we wanted to if we had the people to put it to work. So I do think big institutional investors will continue to fund venture capital, but they will be much more selective and not every venture capital group will get follow-on funding. You know, it’s not too loose in my view and I think that’s going to change, and that’s a good thing.

Mr. SCHONFELD: And what’s your view of the IPO window? Will that ever really open up again or are there fundamental structural phenomena that is keeping it down not just the economy, but you know, everything from Sarbanes-Oxley to -

Mr. KHOSLA: I am pretty sure it will open up again. When is a little hard to predict and that’s why larger funds and deeper pockets are better for both venture funds and for entrepreneurs. I mean, today if I were an entrepreneur, I’d be very careful about only going with people with deep pockets. Because it matters. Now much more than it did before.

Mr. SCHONFELD: So if you’re giving advice to – if I’m an entrepreneur looking for different areas to go into and assuming that I can pull together a team with the required expertise, you know, what’s the counter-intuitive sort of space to go into right now? I would even say Cleantech, there’s a lot of startups out there . . . Mr. KHOSLA: You know, my advice to entrepreneurs is to go into the area of their expertise.

Mr. SCHONFELD: What’s the company that you would invest in in a second, but you haven’t really found it yet? What’s the problem that isn’t being solved by the companies that you’ve looked at that needs solving?

Mr. KHOSLA: Well, for example, storage for electricity is not a problem that has been solved. So, it is not a problem that has been solved.

Mr. SCHONFELD: For portable storage, for large…

Mr. KHOSLA: Well, both portable and stationary storage is not a problem that’s been solved. There’s lots of opportunities in bio materials so you know, in information technology there is, like low power is still a big deal. And so it’s hard to sort of single out areas and I see opportunities and interest, in business trends in almost every area.

Mr. SCHONFELD: Right. So what are your feelings about your first company, Sun Microsystems, being acquired? Mr. KHOSLA: You know, I don’t want to - I think it’s better Oracle acquired it and stayed in the Silicon Valley culture than, say, IBM acquiring it. But frankly, you know, that was a long time ago for me.

Mr. SCHONFELD: Where do these new cleantech companies fall? Are they closer to – do they look more like an industrial company when they mature or do they look closer to, you know, a hardware company or do any of these have software-type margins and how is that possible?

Mr. KHOSLA: Yes, it’s possible. You know, in each case, it’s a business strategy decision. I generally disagree with most of the very high margin opportunities. Why? Because it’s a business strategy tradeoff: the lower the margin you take, the faster you grow.

Yes, a Juniper can do 65% margin, but I tried really hard to convince them to go with 50 percent. Actually, it just increases market penetration faster. And so what are you trying to achieve?

And there are times where . . . take somebody like Infinera. I haven’t been on the board for a couple of years so my data is old. But we had a tradeoff between getting 10% margin on the chassis and 80% margin on the cards, or getting 30, 40, 50 percent margin on the total thing. And one was immediate revenue and margin, and the other was locking in lots of chassis with customers at low margin and then they kept buying line cards from you for ten years. It’s a business strategy question and it worked very well for Infinera. So I think this is a red herring.

Every one of our companies has the opportunity to go after niche markets or a large market. And the larger the market, the more aggressive you have to be.

Mr. SCHONFELD: OK, great.

Mr. KHOSLA: OK.

Mr. SCHONFELD: Thank you for taking the time. I appreciate you taking time on your schedule to talk to us.

Mr. KHOSLA: Great. Thanks a lot.

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Interview: Vinod Khosla Is On The Hunt For Great Technologies

Either Vinod Khosla has the magic or institutional investors are easing back into venture capital, or both. His Khosla Ventures raised $1.1 billion for two new funds, with about $800 million going to Khosla Ventures III and $275 million for a new seed fund.

Taken together, the $1.1 billion is the biggest capital raise for a venture firm in two years, and if you count it as a first-time fund, it is the biggest capital raise in ten years. While these are technically the third and fourth funds managed by the firm, it is the first time Khosla Ventures is taking outside money. (CALPERS, the retirement fund for California state employees, is the biggest new limited partner). Up until now, the capital primarily came from Khosla himself, who is a billionaire, a former star partner at Kleiner Perkins, and a co-founder of Sun Microsystems.

He founded Khosla Ventures in 2004, and now the firm has eight partners. The firm also confirmed today that former Facebook CFO Gideon Yu is now a partner (you read it here first), as is new hire James Kim from CMEA Capital.

While Khosla is best known for funding clean tech startups these days, that is only about two thirds of his existing portfolio. Khosla Ventures is also an investor in Tapulous, Aliph/Jawbone, iLike, iSkoot, Slide, Rearden Commerce, RingCentral, and and Xobni. The new funds will continue to focus on both clean tech and IT in general.

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Khosla Ventures Raises $1.1 Billion. It’s For More Than Just Clean Tech.

Google and On2 Technologies jointly announced today that they have entered into a definitive agreement under which Google will acquire On2, a developer of video compression technology. The acquisition is expected to close later this year. On2 markets video compression technologies that power high-quality video in both desktop and mobile applications and devices and also holds a number of interesting patents.

Some of its codec designs are known as VP3, VP4, VP5, TrueMotion VP6, TrueMotion VP7 and VP8. Its customers include Adobe, Skype, Nokia, Infineon, Sun Microsystems, Mediatek, Sony, Brightcove, and Move Networks. On2, formerly known as The Duck Corporation, is headquartered in Clifton Park, NY.

Under the terms of the agreement, each outstanding share of On2 common stock will be converted into $0.60 worth of Google class A common stock in a stock-for-stock transaction. The transaction is valued at approximately $106.5 million.

According to the release, $0.60 per share represents a premium of approximately 57% over the closing price of On2’s common stock on the last trading day immediately prior to the announcement of the transaction, and a premium of approximately 62% over the average closing price of On2’s common stock for the six month period immediately prior to the announcement of the transaction.

Important to note is that On2 once had a market cap in excess of $1 billion at its peak, after going public on the American Stock Exchange in 1999 following a merger with Applied Capital Funding (which was already listed at the time). Before its entry on the public market, The Duck Corporation had raised $6.5M in venture capital funding from Edelson Technology Partners and Citigroup Ventures.

Back in 2001, On2 made waves by releasing their VP3 compression technology to the open-source community, including their patents on the technology. The technology lives on in the form of (Ogg) Theora. You can find more information about this here.

The agreement is subject to On2 stockholder approval, regulatory clearances and other closing conditions.

Google is reluctant to dive into specific regarding the product plans until after the deal closes, although it’s conceivably related to its immensely popular video service YouTube.

In a blog post, the company says:

“Although we’re not in a position to discuss specific product plans until after the deal closes, we are committed to innovation in video quality on the web, and we believe that On2 Technologies’ team and technology will help us further that goal.

We’ll update everybody when we’re able to share more information. In the meantime, nothing will change for On2 Technologies’ current and prospective customers.”

If would be great if Google decides to open-source On2’s VP7 and VP8 video codecs and free them up as the worldwide video codec standards, thus becoming alternatives to the proprietary and licenced H264 codecs. On2 has always claimed VP7 is better quality than H264 at the same bitrate.

Also noteworthy: Google could use the VP8 codec for YouTube in HTML5 mode, basically forcing its many users to upgrade to HTML5-compliant browsers instead of using Flash formats.

Smart move by Google, and possibly great news for innovation in web-based video viewing.

Expect updates if and when we learn more.

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Google Acquires Video Compression Technology Company On2 For $106 Million

Google and On2 Technologies jointly announced today that they have entered into a definitive agreement under which Google will acquire On2, a developer of video compression technology. The acquisition is expected to close later this year. On2 markets video compression technologies that power high-quality video in both desktop and mobile applications and devices and also holds a number of interesting patents.

Some of its codec designs are known as VP3, VP4, VP5, TrueMotion VP6, TrueMotion VP7 and VP8. Its customers include Adobe, Skype, Nokia, Infineon, Sun Microsystems, Mediatek, Sony, Brightcove, and Move Networks. On2, formerly known as The Duck Corporation, is headquartered in Clifton Park, NY.

Under the terms of the agreement, each outstanding share of On2 common stock will be converted into $0.60 worth of Google class A common stock in a stock-for-stock transaction. The transaction is valued at approximately $106.5 million.

According to the release, $0.60 per share represents a premium of approximately 57% over the closing price of On2’s common stock on the last trading day immediately prior to the announcement of the transaction, and a premium of approximately 62% over the average closing price of On2’s common stock for the six month period immediately prior to the announcement of the transaction.

Important to note is that On2 once had a market cap in excess of $1 billion at its peak, after going public on the American Stock Exchange in 1999 following a merger with Applied Capital Funding (which was already listed at the time). Before its entry on the public market, The Duck Corporation had raised $6.5M in venture capital funding from Edelson Technology Partners and Citigroup Ventures.

Back in 2001, On2 made waves by releasing their VP3 compression technology to the open-source community, including their patents on the technology. The technology lives on in the form of (Ogg) Theora. You can find more information about this here.

The agreement is subject to On2 stockholder approval, regulatory clearances and other closing conditions.

Google is reluctant to dive into specific regarding the product plans until after the deal closes, although it’s conceivably related to its immensely popular video service YouTube.

In a blog post, the company says:

“Although we’re not in a position to discuss specific product plans until after the deal closes, we are committed to innovation in video quality on the web, and we believe that On2 Technologies’ team and technology will help us further that goal.

We’ll update everybody when we’re able to share more information. In the meantime, nothing will change for On2 Technologies’ current and prospective customers.”

If would be great if Google decides to open-source On2’s VP7 and VP8 video codecs and free them up as the worldwide video codec standards, thus becoming alternatives to the proprietary and licenced H264 codecs. On2 has always claimed VP7 is better quality than H264 at the same bitrate.

Also noteworthy: Google could use the VP8 codec for YouTube in HTML5 mode, basically forcing its many users to upgrade to HTML5-compliant browsers instead of using Flash formats.

Smart move by Google, and possibly great news for innovation in web-based video viewing.

Expect updates if and when we learn more.

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Google Acquires Video Compression Technology Company On2 For $106 Million

Is the worst behind us? The broad worldwide recession hit the venture capital and startup communities hard last year. Memories of the NASDAQ meltdown and venture capital “nuclear winter” earlier this decade sent everyone into a tizzy as they feared a repeat performance—venture dollars froze and hundreds of thousands of tech workers were laid off.

But it appears that the worst is over for now. Or at least, the broad indicators suggest that venture and entrepreneurial activity has stabilized and may in some cases be trending up. In Q2 2009 we tracked via CrunchBase a total of 400 estimated new startups founded, $6.4 billion in new venture capital financings and $15.8 billion in merger and acquisition activity. (Download the full report here for $195) And we only tracked 20,000 new layoffs, just 10% of the 200,000 we saw let go in Q1 2009.

Of course this could just be the calm in the eye of the storm, with significant additional turbulence up ahead. Venture capital returns continue to flatline—there are simply too many venture firms investing too much money, and the IPO market for startups remains effectively shuttered. We either need a path towards liquidity for startups or a much smaller venture capital market.

But the Q2 CrunchBase numbers make us cautiously optimistic.

For one thing, we estimate a rebound in the number of start-ups being founded (always a good sign). There were already 191 companies in CrunchBase founded in Q2 2009 (at the time we did our final data run) . We expect that number to reach more than 400 as a result of a normal lag in self-reporting.

Venture investments are also coming back. They increased 19% from $5.4 billion in Q1 to $6.4 billion in Q2 2009. This compares to $5.3 billion in Q2 deals counted by Dow Jones VentureSource and only $3.7 billion by Thomson Reuters in the MoneyTree Report which came out last night. (Each report is based on its own set of data and different methodologies). Although the trend is up from last quarter, our Q2 2009 data is 24% lower than Q2 2008.

The number of deals we tracked in the quarter was 516, a bit lower than the 560 in Q1, but the average deal size went up. Also, we saw a greater appetite for early stage investing, with the money going into Series A investments increasing 83 percent to $900 million. Series B investments still dominated with 104 deals totaling $1 billion. The average deal size was $12.4 million, with the median deal size at $5.5 million.

The M&A action is also starting to pick up. CrunchBase counted 214 exits totaling $15.8 billion for Q2 2009. Aggregate M&A volume is 50% higher than the Q1 total of $10.3 billion, though still down 40% from $25.8 billion a year ago. About half of that total, however, comes from a single transaction: Oracle’s $7.4 billion acquisition of Sun Microsystems (announced during the quarter, but still pending). Other large M&A deals included Glaxo SmithKline buying Stiefel for $3.8 billion, Intel acquiring Wind River for $884 million, OpenText snatching Vignette for $310 million and Intuit buying PayCycle for $175 million.

The full 35-page second-quarter report (including 29 interactive exhibits in excel and 33 PDF graphics) is available for $195 as a download here. This quarter, we added all our raw data and tables into excel files so readers can easily cut-and-paste charts into their own reports and slice-and-dice the data for their own use. We’ve also included a number of graphics that readers can use for third party publishing, linking is appreciated. Of course, you’re also welcome to grab the data free of charge through our CrunchBase open API.

See the report table of contents and a list of exhibits here.

BUY the Q2 2009 Report

$195

BUY the Annual Subscription (2008 Year In Review, Q1 2009 Report, Q2 2009 Report plus the Q3 and Q4 Reports sent to you as soon as they are issued)

$495

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Originally posted here: 
Cautiously Optimistic: CrunchBase Q2 Report Shows Upticks In VC Funding and Exits

Is the worst behind us? The broad worldwide recession hit the venture capital and startup communities hard last year. Memories of the NASDAQ meltdown and venture capital “nuclear winter” earlier this decade sent everyone into a tizzy as they feared a repeat performance—venture dollars froze and hundreds of thousands of tech workers were laid off.

But it appears that the worst is over for now. Or at least, the broad indicators suggest that venture and entrepreneurial activity has stabilized and may in some cases be trending up. In Q2 2009 we tracked via CrunchBase a total of 400 estimated new startups founded, $6.4 billion in new venture capital financings and $15.8 billion in merger and acquisition activity. (Download the full report here for $195) And we only tracked 20,000 new layoffs, just 10% of the 200,000 we saw let go in Q1 2009.

Of course this could just be the calm in the eye of the storm, with significant additional turbulence up ahead. Venture capital returns continue to flatline—there are simply too many venture firms investing too much money, and the IPO market for startups remains effectively shuttered. We either need a path towards liquidity for startups or a much smaller venture capital market.

But the Q2 CrunchBase numbers make us cautiously optimistic.

For one thing, we estimate a rebound in the number of start-ups being founded (always a good sign). There were already 191 companies in CrunchBase founded in Q2 2009 (at the time we did our final data run) . We expect that number to reach more than 400 as a result of a normal lag in self-reporting.

Venture investments are also coming back. They increased 19% from $5.4 billion in Q1 to $6.4 billion in Q2 2009. This compares to $5.3 billion in Q2 deals counted by Dow Jones VentureSource and only $3.7 billion by Thomson Reuters in the MoneyTree Report which came out last night. (Each report is based on its own set of data and different methodologies). Although the trend is up from last quarter, our Q2 2009 data is 24% lower than Q2 2008.

The number of deals we tracked in the quarter was 516, a bit lower than the 560 in Q1, but the average deal size went up. Also, we saw a greater appetite for early stage investing, with the money going into Series A investments increasing 83 percent to $900 million. Series B investments still dominated with 104 deals totaling $1 billion. The average deal size was $12.4 million, with the median deal size at $5.5 million.

The M&A action is also starting to pick up. CrunchBase counted 214 exits totaling $15.8 billion for Q2 2009. Aggregate M&A volume is 50% higher than the Q1 total of $10.3 billion, though still down 40% from $25.8 billion a year ago. About half of that total, however, comes from a single transaction: Oracle’s $7.4 billion acquisition of Sun Microsystems (announced during the quarter, but still pending). Other large M&A deals included Glaxo SmithKline buying Stiefel for $3.8 billion, Intel acquiring Wind River for $884 million, OpenText snatching Vignette for $310 million and Intuit buying PayCycle for $175 million.

The full 35-page second-quarter report (including 29 interactive exhibits in excel and 33 PDF graphics) is available for $195 as a download here. This quarter, we added all our raw data and tables into excel files so readers can easily cut-and-paste charts into their own reports and slice-and-dice the data for their own use. We’ve also included a number of graphics that readers can use for third party publishing, linking is appreciated. Of course, you’re also welcome to grab the data free of charge through our CrunchBase open API.

See the report table of contents and a list of exhibits here.

BUY the Q2 2009 Report

$195

BUY the Annual Subscription (2008 Year In Review, Q1 2009 Report, Q2 2009 Report plus the Q3 and Q4 Reports sent to you as soon as they are issued)

$495

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Read the original here:
Cautiously Optimistic: CrunchBase Q2 Report Shows Upticks In VC Funding and Exits

Andreas Bechtolsheim, co-founder of Sun Microsystems and chief development officer of Arista Networks, a Silicon Valley cloud computing company. Credit: Alex Pham / Los Angeles Times.

Google made waves in the tech world this week when it announced plans to release an operating system that would encourage wider use of something called cloud computing.

Although most have never heard of cloud computing, many do it every day. By uploading photos to Facebook, sending messages via Gmail or playing Club Penguin online, users are accessing programs and software files that live far away in cavernous, climate-controlled rooms containing thousands of computers.

To help explain this shift in the way we use computers, we turned to Andreas Bechtolsheim, co-founder of Sun Microsystems and chief development officer for Arista Networks, a Silicon Valley startup that supplies networking equipment used to build these massive arrays of cloud computers.

As it turns out, Bechtolsheim was also one of the first people to invest in Google back in 1998, when the company was just two Stanford geeks with a laptop. His