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January 27, 2005

VCs: The New Teen Heartthrob?

Sarah Lacy

Has anyone else noticed that venture capitalists have come down with a case of teen fever? SiliconBeat and VentureWire have news today of a $3 million investment in San Francisco start-up PhoneBites. The technology allows teens (or teens-at-heart) to inject audio clips into phone conversations. For instance, an entrepreneur could now inject Jerry McGuire's "Show me the money!" into an investor conference call.

While I wouldn't put such high jinks past some in the business world, the article points out that real target is the ring tone downloading youth of America—a market VCs seem more and more enamored with.

Earlier this week, we blogged about a $5 million investment in Mercora, a free music streaming and social networking site that also seems targeted to teens, even though CEO Srivats Sampath and Norwest investor Jim Lussier swear they spend hours a day streaming classic rock and making music pals around the world. And in December, I wrote a piece for BusinessWeek online about mobile marketing—a new wave of interactive advertising that's set to explode in the next few years and is also aimed squarely at the teen market. No doubt venture money is at play there too or will be soon.

On one hand, I am thrilled to get press releases about something a little jazzier than a better way to build a firewall or become Sarbanes Oxley compliant. And with investments of just a couple million dollars each, we're hardly talking about reckless spending. Still, I have to wonder—what do VCs know about the teen market? It's a tough one to reach and notoriously fickle. Remember when the Gap tried to seize the trendy teen market in the late 1990s with glitter T-shirts? It didn't turn out so well. The annals of teen marketing are littered with such stories.

Of course, the potential rewards are huge. Teens control an increasingly large percentage of a household's purse strings. And, if you think about it, that's just the kind of risk-reward that VCs were born to pursue.

But it must be a whole different kind of due diligence and I'm dubious all investors are doing a good job at it. It reminds me of a conversation I had with Yogen Dalal of Mayfield many months ago. He talked about the importance of "living the digital lifestyle" as a venture capitalist. That's right: Big, powerful VCs dating online, downloading ring tones, buying songs from iTunes, and chatting it up on Friendster. Not exactly how I picture the Sand Hill lot spending their time, but with such an unpredictable market let's hope some kind of alternative market research is going on.

Perhaps an excuse to expense a lunch with the kids?

02:17 PM

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