Those VCs are so darned smart

Michael Hedges September 10, 2008

Trend spotting is a delicate art. Whether consumer trends or financial trends, waves of the future appear to the truly gifted. And today, there’s always a press release. Somebody always finds good news in any trend.

Consumer trends and financial trends should, some say, intersect at a happy point on the horizon…or unhappy. For example, the dot.com bubble burst at the end of the last century when investment ended (financial trend) after people decided the dot.coms weren’t worth much (consumer trend). Venture funds (VCs), private equity institutions (PEs) and stock traders collected huge fees even as companies disappeared. Such is the beauty of using other peoples’ money.

The bleeding edge, arguably, of financial trend spotting is the venture funds. Typically, venture funds love technology – patentable assets – and hate media – too many DJs. Private equity firms love and hate everything – the mind changes quickly. Stock traders make their money selling wagers. It’s a cruel world.

One of the bleeding edge venture funds - Index Ventures - is located just footsteps from ftm World Headquarters in Geneva, Switzerland.  Index Ventures has picked a few hits; Skype, MySQL and Last.fm being a few of the better known. This week Index Ventures with brother VC Accel Partners (they picked Facebook) put €10.5 million (US$15 million) in MyHeritage.com.

Web-based media isn’t always popular with VCs. One common denominator for attracting their attention is enabling. MyHeritage.com – based in Israel - enables people’s search for family members and relatives and builds family trees. The hook is photo-tagging technology, matching up when possible the 230 million photos users have already up-loaded. All the while, MyHeritage.com compiles a huge database of people looking for family members and their family members. So far it has 25 million members.

The press release positioned MyHeritage.com as a family network, like Facebook is for friends and LinkedIn is for professional networking.

Not mentioned in the press release is the all important revenue stream. Company information, though, says they plan on exploiting “e-commerce – birthdays and anniversaries” and, of course, advertising. The basic rule-of-thumb for website advertising suggests there’s no (real) money with traffic less than a million visits per month.

Let me digress, slightly. As it happens, an email appeared this week from a media buyer at a rather large automobile agency. It must have been something I said about media buyers. To make a short story shorter, this media buyer said she, indeed, was not decreasing overall ad spending, but canceling newspaper ads and spending the same for a database of potential car buyers. Where, exactly, that comes from is another story.

Database marketing – also known as customer relationship management – was all the rage when PCs became common on all desktops. Marketing managers started hiring interns who knew DB4. Keeping track and targeting customers became a serious business sector in itself.

It’s still a serious business, like the whole of direct marketing. But serious business knows that the cost of acquiring a customer is always the largest. And they are happy to pay.

MyHeritage.com will not likely rival Google as an ad magnet. It doesn’t need to. It owns a database of an active user set. This is called an affinity group. Once captured, that affinity is targetable… and most attractive.