Technology Fundamentals Are Still Key, Suggests ONSET Partner as Web 2.0 Increasingly Infatuates Entrepreneurs.

MENLO PARK, Calif. -- ONSET Ventures partner Mark Hilderbrand posited today that the accelerating infatuation among entrepreneurs and investors for "Web 2.0" companies may cause many to once again lose sight of fundamental technology as an indispensable, even key factor for success in startup companies.

"Quite a few companies that currently fashion themselves as 'Web 2.0' plays indeed have very interesting market opportunities," said Hilderbrand, "and the accelerating pace of investment in Web 2.0 startups shows that many agree. But, does it make sense?"

According to Hilderbrand, Web 2.0 stresses the organic, collaborative and social nature of the Internet, and its efficacy depends upon scale. "Web 2.0 is the poster child for the 'network effect', and the winners are going to have vast data and subscriber assets, and a long reach," he maintained. "These are not typically the stuff of startups."

As a case in point, Hilderbrand cites Web 2.0 darlings Flickr, MySpace, and Gmail. "Like during the 'bubble', there are an alarming number of entrepreneurs who appear to be seduced by the ease at which a Flickr's business model may be replicated and its market entered with something just a 'little more cool.' But it's a seduction, nonetheless; the chance of a young, privately-funded company being able to muster the vast marketing resources of a Yahoo, News Corp, or Google are diminishingly small." The latter, as many know, are the deep-pocket parent companies of these high-profile ventures. "For every 'collaborative environment' or 'photo sharing' site that makes it, there will be a thousand that fail," he said.

Instead, Hilderbrand encourages entrepreneurs to look to start companies that are, in fact, founded based on significant technology leaps that can fuel or take advantage of market disruptions. "Startups have a significant advantage when it comes to exploiting new technologies, particularly those based upon deep intellectual property assets. If there is any post-mortem to be had from Web 1.0, it's that lesson."

Hilderbrand believes this prescription is particularly important for those entrepreneurs who cannot resist attacking what are generally held to be "mature" markets. "Companies like Oracle and SAP are increasingly becoming weighted down by their legacy architectures," said Hilderbrand. "There are now opportunities in enterprise software based upon orthogonal approaches and new algorithms."

Hilderbrand and his partners work hard to take their own advice; areas that continue to interest ONSET include sensor networks, mobility, video, and "algorithmically rigorous" enterprise software. They are also attracted to ideas originating in basic or academic research that may be ready for commercialization. Although not all such research is yet at such a stage, said Hilderbrand, there are some very interesting opportunities that - with the proper business model and a clear, milestone-driven business plan - can turn into market winners.

As examples, Hilderbrand cited three recent ONSET investments: Blue Vector Systems, Syndera, and Securent.

"Blue Vector Systems excited us because they bring unique, new technology to RFID and other sensor-based automation of physical business processes," said Hilderbrand. "This puts them in a very strong position to be an enabling technology in the growing array of sensor networks. And it's a market that rewards innovation.

"Syndera has pioneered a new software architecture that enables real-time analytics across multiple departments and systems; thereby empowering front-line business operations to make better decisions, faster. This is a real market need that has been waiting for the proper technology.

"And finally, Securent has made breakthroughs in enforcing rights and privileges in complex enterprise computing environments. With the n-squared complexity of software, this has become an increasingly intractable problem."

Concludes Hilderbrand: "These are not companies that have just mashed up or evolved existing businesses to create their own revenue. They have invented something new and can defend it both with technology breakthroughs and great marketing. These are significantly more interesting investments than 'Bubble 2.0'."

About ONSET Ventures

ONSET Ventures specializes in providing an ideal mix of start-up, follow-on, and intellectual capital to entrepreneurs and early-stage technology ventures, to help transform world-class ideas into sustainable and valuable businesses. The firm has backed over 100 companies since 1984 and now has more than $700 million under management.

ONSET pioneered, and has refined over 20 years, a highly-optimized tool set for risk and capital management, and a shirt-sleeves style of active collaboration with entrepreneurs that leverages the firm's substantial operating experience. That collaboration frequently begins before the closing of any financing, and typically continues throughout the life of the venture. The combined process, which has become the hallmark of the firm, has resulted in ventures that have consistently met their operational and financing milestones. In addition, it has resulted in a franchise that not only brings successful, serial entrepreneurs back to ONSET Ventures time and again, but also attracts investors who want the increasingly rare opportunity to participate in very early stage venture investing.

ONSET Ventures focuses exclusively on information and medical technology-based start-ups, and has a long history of successful ventures in each of these sectors.

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Additional background information is available at www.roeder-johnson.com.