Lawrence Aragon

Due to popular demand, we’re making the full list of winners of the VCJ 20 Most Promising Startups available. See my original post for the genesis of the project and how we chose the winners. Venture Capital Journal subscribers can read in-depth profiles of all the winners here. Not a subscriber? Go here for subscription and reprint information. And now—drum roll, please—here are the top 20 most promising startups that raised seed or venture funding in 2009, as chosen by the writers and editors of Venture Capital Journal. (Full list after the jump)

As journalists, we’re constantly second-guessing investments made by VCs. With that in mind, the writers and editors of Venture Capital Journal decided to find out if we're are really as smart as we think are, or are as dumb as rocks when it comes to picking good deals. The result is the VCJ 20, which lists the 20 most promising startups that received seed or Series A financing in 2009. The goal of this project was to create a list of truly promising companies, no matter who founded them or who their backers were. VCJ focused on five factors when rating each company: potential market size, quality of the team, technology edge, business model, and exit potential. I’m proud to announce that the company at the top of VCJ’s list is Cloudera, which offers consulting services and is building tools around Hadoop software and is backed by Accel Partners and Greylock Partners.

I'm not entirely sure what to make of this photo, which popped up in my Facebook News Feed last night when TechCrunch founder Michael Arrington declared that it was "100% cool." I'm not sure if I'd agree with Arrington's assessment, but it's definitely strange enough to rate as news on a slow news day. When I first saw the pic, I felt like I was having a dotcom flash back. Remember when VCs were having parties every night and rubbing elbows with all the cool kids? But when I looked closely, I saw that MC Hammer was wearing normal pants and super angel Ron Conway was standing next to will.i.am, who I'm pretty sure wasn't one of the cool kids in 2000.

Most U.S. venture capitalists who invest in cleantech don’t believe the nations of world will do enough to slow climate change by 2020, but they are optimistic that the startup companies they finance will lead the way in creating technologies that reduce global warming. Those were two of the takeaways of a recent survey of 41 cleantech investors by Reuters and Venture Capital Journal. (Complete results of the survey are available to VCJ subscribers here.) "It is likely that we will make significant technology, conservation and policy gains globally ... but material CO2 reductions will take an additional decade to register," Don Wood, a managing director at Draper Fisher Jurvetson, wrote in one survey response. Robert Nelsen, co-founder and managing director of Arch Venture Partners, noted that "the world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States’ innovation. China and Europe are doing well developing markets and applications, but we [the United States] still own the fundamentals.”

Venture capital investment picked up significantly in the fourth quarter, according to preliminary data from Thomson Reuters (publisher of peHUB). The National Venture Capital Association and PwC won’t release their official MoneyTree Report (which is based on Thomson Reuters’ data) until this Friday, but the raw numbers in our database show a spike. The preliminary figures show that U.S.-based VCs pumped just over $17 billion into nearly 1,400 companies in Q4, making it the biggest quarter of 2009. By comparison, U.S.-based VCs invested $13.9 billion in 1,251 companies in Q3, $8.9 billion in 1,223 companies in Q2, and $7 billion in 1,130 companies in Q1, according to Thomson Reuters. The MoneyTree numbers will be a bit different, since they focus only on investments in U.S.-based companies (regardless of VC location). They also get scrubbed a bit by PwC before release. That said, I'd be surprised if MoneyTree shows a decline from Q3 to Q4. As I noted in a previous post about New Enterprise Associates, we’ve seen anecdotal evidence that at least some firms have become more active.

In a dismal year for both VC-backed IPOs and M&A, Accel Partners stood out. Nine of its portfolio companies were sold for combined proceeds in excess of $2 billion, a significant increase from 2008, when 10 of its portfolio companies were sold for less than $300 million in total disclosed proceeds. Accel’s three biggest hits were mobile advertising startup AdMob, bought by Google for $750 million; open source software developer SpringSource, acquired by VMWare for $420 million; and national defense technology provider BBN Technologies, bought by Raytheon for $350 million. I spoke to Accel’s Jim Breyer about his firm’s M&A successes and a host of other issues for Venture Capital Journal’s January issue. VCJ subscribers can read the full interview here. For you, dear peHUB reader, you can get video snippets of our interview after the jump...

Reuters is conducting a short survey to help inform the discussion at the World Economic Forum in Davos later this month. Over 30 cleantech VCs have taken the survey so far. A couple of interesting data points: One, most of the respondents expect one or two of their cleantech portfolio companies to go public or get acquired this year. And two, most of the respondents are focusing their current investments on startups that help conserve energy (e.g. makers of LED lighting, energy-efficient building materials, software that tracks and manages energy used in home and electric vehicles) -- as opposed to startups that create energy (e.g. biofuel companies) or startups that store energy (e.g. battery makers). All the survey results will be published later this month on Reuters.com and in an upcoming issue of Venture Capital Journal. Our goal is to get at least 50 respondents. If you’re a cleantech investor and you haven’t taken the survey, we’d love to hear from you. Please shoot me an email to lawrence.aragon@thomsonreuters.com and I’ll send you a link. It’s a really short survey.

Looks like it's the beginning of the end of the fight over increasing taxes on carried interest. The House of Representatives today passed "The Tax Extenders Act of 2009," aka HR 4213. The bill contains a provision that would change the tax status of venture capital carried interest from capital gains to ordinary income, with the purpose of paying for year-end tax extensions. "Increasing the taxes of long term investors whose commitment to building companies and creating jobs has been proven for decades is counter productive to the one goal on which our country should be focused – economic recovery," Mark Heesen, president of the National Venture Capital Association, said in a statement. "The President and Congress have made it clear that to emerge from our financial troubles our country needs jobs and innovation. Taxing VCs who are working with fast growing start-up companies so that large corporations can continue to receive tax breaks is ill conceived policy." With the Dems in charge of both the House and Senate, plus a Democratic President, odds are that VCs will soon be paying the ordinary income rate on carried interest instead of the capital gains rate. The irony, of course, is that after a dearth of liquidity events over the past couple of years, we've recently seen some sizable exits that would provide actual carried interest to be taxed. Merry Christmas, venture capitalists! --Love, Your Uncle Sam

We won’t officially know until early Q1 whether VC investment levels returned to normal in Q4, but I have yet another piece of anecdotal evidence that the market is improving. For the second month in a row, I’ve been surprised by the number of deals on Venture Capital Journal’s list of the Top 10 Most Active VCs. For most of this year, the top deal maker on the list has done about seven or eight deals per month. That changed in October, with New Enterprise Associates going into warp drive and closing 12 deals, up from eight the prior month. For November, I found that not only did NEA do another dozen deals, but it wasn’t even at the top of the list. Intel Capital came in at No. 1 for November with 16 deals, up from just three deals the prior month. I’m not ready to say “Venture Is Back, Baby,” like Jon Callaghan, but these data points at least give us reason to hope.

As Jeff Bussgang pointed out in his column today, the alleged fraud at VC-backed Canopy Financial is reminiscent of the fraud case at VC-backed Entellium last year. In that case, the former CEO and CFO were sent to prison in March for wire fraud and lying to investors (including Ignition Partners and Intel Captial) about their company’s actual revenue. Former Entellium CEO Paul Johnston was sentenced to three years in prison and a little over $2 million in restitution, while former CFO Parrish Jones was sent away for two years and ordered to make restitution of more than $850,000. Once they get out of prison, the pair also have to serve 80 hours of community service in a homeless shelter or soup kitchen. Venture Capital Journal published a story last year after the Entellium case broke, questioning whether VCs could have done anything to prevent the fraud. Since it’s Friday, dear HUB readers, I’m making the story free today. Read it here.