July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Groundfloor wants to take power away from banks and put it in the hands of the people.

The startup is building a peer-to-peer platform that gives regular people opportunities to invest in real estate projects. It is emerging out of stealth mode today and opening up to private beta.

Founder Brian Dally describes it as a ‘Lending Club for real-estate.” Lending Club is an online community that connects people who need to borrow money with people to lend it to them, instead of going to a bank. It is on track to originate $2 billion in loans this year and Dally saw an opportunity to apply the same online model to larger asset classes. Real estate is a $3.5 trillion market and Groundfloor wants to help people of all wealth classes get their ‘financial dessert’ (hence the baking-a-pie picture above).

“If you are a big rich private equity investor, you can loan money to real estate projects and receive a high rate of interest, and when the project cashes out you get to share the upside of that,” he said in an exclusive interview with VentureBeat “This plays a role in the wealth disparity in this country — its part of the reason why the rich get richer. They can make investments in larger assets for higher returns. We want to give the average person the same chance.”

Real estate projects require a large amount of money to get off the ground. Ordinarily a developer will borrow money from a bank and seek out wealthy investors to bankroll the project. The developers then pay the money back with a high rate of interest and the investors get a share of the profits. Groundfloor crowd sources this investment by allowing anyone to contribute money, even as little as $100, to a project and receive higher interest than they would through low-yield savings accounts, 401k plans, CD’s etc…Developers can use Groundfloor to avoid dealing with bank requirements and jumping through hoops.

“Nobody likes banks,” Dally said. “They are driven by centuries of inertia and regulatory infrastructure. Banks behave the way they do because they have all this power and can do what they want, but the web is changing all that. It adds a layer of democracy and transparency in way that banks just can’t, and consumers are responding with their wallets. People are showing that they want alternative ways to use and grow their money.”

Many of those regulations are in place to safeguard investors from fraud and provide some insurance that they will be repaid. Groundfloor will address concerns over trust and security by running extensive background checks on every developer and verifying that they have the experience necessary to execute. The first project is for a multi-tenant building of lofts in a college town. The developer has 20 years of experience and has completed over 60 projects. Dally said once they see how this first campaign goes, they have a range of other projects queued up. Groundfloor will make money from the borrowers who will pay to use the platform for putting their offering together, market it, and manage repayment.

Dally previously worked at Republic Wireless, a company that challenged traditional wireless carriers with with “hybrid calling” that offered no-contract talk, text, and web access for just $19 a month. His cofounder Nick Bhargava founded crowd funding Motaavi and played a significant role in getting the JOBS Act signed. The two wanted to build a company together that would take power away from incumbents who weren’t using it well, and give it to the “average Joe.” Groundfloor is bootstrapped and based in Raleigh, North Carolina.

Photo Credit: freshwater2006/Flickr

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Cynthia Schames was laid off from her job a day before her wedding. She worked in enterprise software sales for 12 years, but ultimately this setback led her to found Abbey Post.

Abbey Post is a plus-size fashion marketplace and community. The company just released a totally rebuilt version of the site, which now features an internal social network and expanded inventory. It takes an Etsy-style approach where anyone, from independent designers to established brands, can sell their wares.

“I chose this model of peer-to-peer commerce specifically because I want to build community,” Schames said in an interview. “Plus-size women feel really disenfranchised, neglected, and left out of conversations about fashion. There are many people who think fat ladies aren’t sexy and don’t care what they look like, even though there are over 100 million plus-size women in the US. If you give them a platform to connect over fashion and buy clothes that make them feel good, that math adds up real fast.”

After leaving her sales job, Schames gained e-commerce experience by founding an online consignment store for luxury accessories. She is a plus-size women herself and was drawn to handbags and jewelry because they are size agnostic. As a professional in New York City, she said it was consistently difficult to find plus-size clothing because a lot of brands are pulling their plus-size clothes out of stores and moving sales entirely online. However, none of the online retailers provided particularly appealing options and none incorporated the social element that makes shopping enjoyable for many women. Schames repeatedly had conversations with women who felt marginalized in the same way and realized there was a bigger opportunity out there.

“I’m not sure who told people that size 14 and up love polyester, but it’s not true,” she said. “Plus-size women are tired of going to the mall and looking through two abandoned racks in the back. Fashion is aspirational and today’s runway model averages a size zero. That does not reflect a majority of women. The fashion industry wants to fetishize thinness and sell us this fantasy, but it’s not real life and it pisses me off. I have a daughter and I don’t want her growing up feeling bad because she isn’t like the magazine. Part of our mission is telling women it is OK to love who you are. I am working hard to bring a positive and accepting and inclusive environment to normal women.”

Social e-commerce and peer-to-peer commerce are trendy right now and changing the experience of shopping online. The e-commerce sector didn’t see too much innovation for many years — brands and retailers put their inventory online and shoppers searched for what they were looking for. Recently, a wave of fashion startups such as Wanelo, Luvocracy, Etsy, Poshmark, and Polyvore have taken various approaches to transforming this experience and finding new ways to browse and buy products online. At a recent media dinner about social e-commerce, Angel List founder Naval Ravikant (who is an investor in Wanelo) said this is the future of shopping.

Abbey Post is using these new models to target an underserved and highly valuable market. It is a passion project that addresses a widespread and unique set of needs. There are other plus-size online retailers out there like Avenue.com, Fashion to Figure, SimpleBe, Jessica London, and OneStopPlus, but Schames said her focus on high-end clothing and her social approach sets AbbeyPost apart. She also said there are products and features in the pipeline that will make Abbey Post an innovative tech company, rather than just a tech-enabled one.

AbbeyPost is bootstrapped and based in New York.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

The car-sharing space is beginning to resemble a NASCAR race, with a multiple contestants putting the pedal to the floor in an effort to break ahead. Today, car-sharing startup RelayRides announced that it has acquired competitor Wheelz to accelerate its growth.

RelayRides is a peer-to-peer car sharing marketplace where people can offer their cars for daily or weekly rentals. Wheelz adopted a similar model as well as proprietary DriveBox technology that facilitates keyless access to cars. With this acquisition, RelayRides will absorb Wheelz and its marketplace, technology, and several “key people” from the Wheelz team.

“RelayRides has been growing rapidly and we are confident that this acquisition will turbo-charge our growth,” said RelayRides director of communications Steve Webb to VentureBeat. “We are going to be better positioned to extend the benefits of peer-to-peer car sharing to more people across the U.S. This acquisition demonstrates that the peer-to-peer car sharing marketplace is maturing and consolidating. As an industry matures, consolidation follows, and the peer-to-peer car sharing industry is no exception. We are witnessing the evolution and maturation of an exciting space.”

Webb said that RelayRides and Wheelz share the goal of having a car within a 10-minute walk for at least 100 million Americans by the end of 2015. Instead of owning a car or renting one from an agency, people can turn to services like RelayRides for a more personal and affordable mode of transportation. Each car on the site has a profile with information about its features, ratings and reviews, and owner bio. All drivers are screened, and RelayRides provides insurance on the rentals, so drivers don’t have to worry about damages.

RelayRides and Wheelz are part of a trend surrounding “the rise of disownership.” Consumer attitudes and behaviors surrounding renting, borrowing, and leasing items, versus ownership, are shifting across the country. People are increasingly engaging in disownership by putting their under-used property to work. Internet startups facilitated this movement by adopting ‘shared economy’ or ‘collaborative consumption’ models that connect people with available assets to people who need them. AirBnB did this for homes, TaskRabbit for services, but the transportation space is still a dynamic and crowded area. Uber, Lyft, and Sidecar can be used instead of taxis, and RelayRides is providing an alternative to traditional rental agencies. It mainly competes with Zipcar and Getaround.

Since launching in 2012, RelayRides added tens of thousands of members into its marketplace and thousands of postings for cars. Webb said rental reassertion hours increased by 500 percent and April was the company’s best month yet in terms of revenue and new members added. By scooping up Wheelz, RelayRides will expand its marketplace.

RelayRides has raised $13 million in venture capital. In 2012, it teamed up with General Motors so that 6 million of GM’s OnStar subscribers could rent out their cars using RelayRides. Wheelz had raised a total of $15.7 million and includes Zipcar has an investor. Both companies are headquartered in San Francisco.

The financial details of the deal were not disclosed.

Photo Credit:  Darryl W. Moran Photography

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

The Pirate Bay has run out of luck in Sweden, where the Swedish Pirate Party has been providing hosting for the popular file-swapping site. Due to legal threats and general harassment from a local antipiracy group, the site is now being hosted in Norway and Spain.

The antipiracy group in question is the Rights Alliance, which “stated that they intended to bring legal action against The Pirate Party and individual representatives of the party if the party did not cease to provide The Pirate Bay with Internet access on the 26th of February at the latest,” according to a statement from the Swedish Pirate Party.

Party leader Anna Troberg is quoted in the same statement as saying that the specific threats against the party and individuals involved took a heavy emotional toll both on the organization and its commitment to hosting The Pirate Bay.

“It is somewhat odd to realize that your political engagement can come at such a high cost in Sweden in the year 2013,” Troberg said. “I am therefore very happy that the anonymous heroes of The Pirate Bay very early on decided to help The Pirate Party out of the difficult situation.”

The Pirate Bay will now get its connection to the Internet from two newly formed sister organizations to the Swedish group: the Norwegian Pirate Party and the Catalonian Pirate Party (in Spain). The two-headed nature of the hosting situation has even given rise to a new metaphor and moniker for the site: The Hydra Bay.

From the Pirate Bay’s latest blog post:

“A typical Whac-A-Mole machine consists of a large, waist-level cabinet with five holes in its top and a large, soft, black mallet. Each hole contains a single plastic mole and the machinery necessary to move it up and down. Once the game starts, the moles will begin to pop up from their holes at random. The object of the game is to force the individual moles back into their holes by hitting them directly on the head with the mallet, thereby adding to the player’s score. The quicker this is done the higher the final score will be.

Current score: 0″

“This is … the first time we are going to show two [hosting locations] at the same time,” a Pirate Bay rep said to TorrentFreak today.

“It will be interesting to see who is now blamed for hosting TPB. In the end, maybe the anti-Interneterians will understand that they can’t win a fight when they have the people against them.”

And as for the Rights Alliance, Troberg said the Swedish Pirate Party will be filing a police report against the group for “unlawful coercion” regarding its work with and for TPB. TPB, interestingly enough, filed a similar report in Finnland earlier this month.

“The Pirate Party’s mission is not to produce martyrs for the copyright industry,” she said. “Our mission is to create long-term political change that ensures that the copyright industry in the future will not be allowed to threaten companies, organizations and individuals into silence with our common judicial system as a weapon.”

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

In Act 1, Scene 3 of Hamlet, Polonius counsels “neither a borrower nor a lender be.” However, for people looking to do either, Prosper.com’s peer-to-peer lending marketplace is an online place to do it.

Prosper.com announced today that it has raised $20 million from the prestigious venture firm Sequoia Capital. It’s slated this funding to “accelerate Prosper’s growth at a time when the market for peer-to-peer and business-to-peer finance is rapidly expanding.” In short, to help Prosper out-prosper its competitor, Lending Club.

Prosper also announced it has appointed Stephan Vermut as the new CEO, the former founder and managing partner of Merlin Securities that was recently acquired by Wells Fargo.

“I’ve watched with great interest over the past few years as the peer-to-peer lending industry has grown substantially, and I believe Prosper is in a unique position to offer both borrowers and lenders unprecedented access to financial opportunity,” said Vermut in a statement.

People traditionally take out loans with banks. Prosper eliminates the middle man by connecting people who want to invest money with people who want to borrow money. Borrowers list loan requests between $2,000 and $25,000, and individual lenders invest as little as $25 in each loan and earn returns on their investment.

Prosper has enabled more than $400 million in personal loans since it pioneered this type of service in 2006. Over the years, it has hit some road bumps with the SEC, shutting down in 2008 after receiving a cease-and-desist letter for not properly registering under the Securities Act. The company has come back, however, and now claims to be growing at 100 percent year-over-year in revenue and loan originations. There have also been some product changes that inspire more confidence, and this money will take the Prosper into “its next phrase of growth.”

This is Prosper’s sixth round of institutional funding and brings its total to $94.7 million. Previous investors include a laundry list of venture firms, including Draper Fisher Jurveston, Crosslink Capital, Accel, and Benchmark.

Read the press release.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Hats off to Avis Budget Group for closing one of the most opportunistic deals in recent years. The company’s $500 million acquisition of Zipcar represents a 180-degree shift in strategy, and may put the company a step ahead in the fiercely competitive car rental market.

In the aftermath of the announcement, Zipcar came under a firestorm of flak from Silicon Valley’s commentators. The primary criticisms are that the company is under-valued, and that the acquisition will stunt the unstable and nascent car-sharing economy.

However, the acquisition adds legitimacy to the car-sharing space, and will propel younger rivals into the spotlight.

“It’s a big day for car sharing and a proof-point for the industry,” said Jessica Scorpio, cofounder of Getaround, on hearing the news. In an interview, Scorpio said it was a “good deal,” primarily because the car-sharing market is still in its infancy. “Zipcar’s value hasn’t been realized yet,” she explained.

Massachusetts-based Zipcar is the undisputed leader in the car-sharing market. It was one of the first to experiment with the sharing business model when it’s founder Robin Chase, a mother of three, saw evidence of car-sharing’s success in Berlin in the late 1990s and promptly received financing. This model would later be dubbed the ‘The Sharing Economy’ by its Bay Area advocates, including Zipcar early investor and former AOL chief executive Steve Case, and would later be adopted by services like Airbnb.

Zipcar manages a fleet of more than 10,000 for-rent vehicles spread across 19 metropolitan markets and over 300 college campuses. The 12-year-old car-sharing network has more than 730,000 members and about 1 million customers. The company booked 4 million total reservations in 2011.

At first look, this may seem impressive, but Zipcar has never been able to turn an annual profit, losing about $55 million since 2007. This prompted the Wall Street Journal to recently call it a “pretty awful” company.

Still, the new generation of startups view Zipcar as the pioneer in the space, paving the way for more feasible business models. The company was one of the first to experiment with hourly rentals, which allowed it to break into markets and demographics that traditional car-rental services like Hertz and Avis could not. The service found its niche with busy urbanites who rent nearby vehicles for weekend use, and often opt out of owning a car altogether.

Is $500 million a fair price?

From a purely financial perspective, it’s a fair deal.

Zipcar has struggled to grow its membership base and turn a profit. As entrepreneur Mark Rogowsky rightly points out in Forbes, there is a fundamental “structural issue” — users typically rent a Zipcar over the weekend. But Zipcar owns a fleet of roughly 10,000 for-rent vehicles and must pay for their upkeep and maintenance on a consistent basis.

An acquisition is also motivated by a company’s efforts to market to new customers. In a phone call with analysts, Avis CEO Ronald L. Nelson revealed that he was skeptical of car-sharing services in the past but viewed this acquisition as an opportunity to reach a younger demographic and increase weekend availability.

Avis hopes this will translate into revenue — it said it expects “to generate $50 to $70 million in annual synergies” in relation to the deal. The company also said it expects its full-year 2012 revenue to be about $7.3 billion, a 24 percent increase over 2011.

“What’s unique about Zipcar is the brand,” said Scorpio. “In terms of car-sharing, Zipcar is the top-notch experience.” She told me that traditional car-rental services have been sniffing at the heels of Silicon Valley startups for years, but that Getaround isn’t in the market for an acquisition.

“We have pretty frequent conversations with car rental [companies] and car automakers,” she said. “[But] I think the quick win is Zipcar if you can get it.”

Zipcar owns cars — it’s not peer-to-peer

Zipcar’s younger rivals will often tell you that its business model is broken, as the company is encumbered by its inventory. In its life span, it has needed to borrow $97 million to finance its fleet of cars.

“Thank God we don’t have that model,” said RelayRides‘ CEO Andre Haddad in an interview. “Their economics are different.”

The “peer-to-peer” model has numerous business advantages. It taps into the installed base of cars that people already own. For one thing, Getaround has developed some unique IP in the form of its hardware, its CarKit, which allows users to unlock a stranger’s car via a smartphone.

Both RelayRides and Getaround have seen faster adoption and have expanded to more cities than Zipcar. Getaround claims to have signed up over 10,000 car owners in a year and a half, while Zipcar took 12 years to build up its fleet of 10,000 cars.

While Zipcars often sit idle, Getaround has been able to capitalize and plans on “leveraging the 250 million cars that sit idle 22 hours per day,” according to Scorpio. Likewise, Relayrides, a service that lets you rent cars from anyone in your community, expanded last year from 2 cities in 2 states to 1,200 cities in 49 states.

With peer-to-peer, there are no parking or logistics issues, and scaling is more seamless. As Scorpio often says, “It’s about car access over ownership.”

Meanwhile, Zipcar couldn’t find a cost-effective way to increase its membership, and its growth rate hit the skids in the past three years. As the Wall Street Journal points out, Zipcar was a “prodigious money-loser” and consistently had to halt plans to move into Europe, which would take more resources than the company had at its disposal.

This deal won’t halt innovation

The news seems to have offended some commentators, who hit back with claims that such a move would stunt disruptive innovation, perhaps even knocking the confidence of younger players in the space.

Sarah Lacy of PandoDaily wrote about her many reasons for hating the deal, arguing that Zipcar has made “inroads into this oligopoly” and that with the “biggest disruptor gone … all the others are still fledgling.” She said that Avis is not a tech company and would be unlikely to push the envelope.

The deal may not be considered cool from Silicon Valley’s (somewhat insular) perspective, but it doesn’t appear to have affected morale.

As a whole, the ride-sharing space has experienced its ups and downs, most recently with lawsuits levied against services like Uber, Sidecar, and Lyft, but yesterday’s acquisition isn’t one of them.

Getaround has some high-profile supporters. The peer-to-peer car sharing service recently raised $13.9 million from investors like Yahoo’s Marissa Mayer and Google’s Eric Schmidt, and now it’s expanding to Chicago with the help of Mayor Rahm Emanuel.

The idea behind the San Francisco-based startup is to make it safe and easy to take a spin in a stranger’s car. The company launched in 2009 and has grown quickly, expanding to cities like Portland, Ore.; Austin, Texas; San Diego; and now Chicago. It’s signed up over 10,000 car owners across the country. Chicago is its fifth city and is the company’s first foray into the Midwest.

With options including the Toyota Prius or a Tesla Roadster, Getaround offers car rentals from $3 an hour, and car owners make an average of $350 per month from listing their car. It makes money by charging a 40 percent commission — this may seem high, but it’s a darn sight better than leaving an unused car to gather dust in a garage.

The startup competes with Zimride, Relay Rides, and others, but has signed up more cars than any other service and recently eclipsed Zipcar. It’s competitive differentiator is the hardware kit, which lets users unlock a Getaround car with a smartphone.

Emanuel, the former the White House chief of staff to President Barack Obama, said that a service like Getaround is crucial for Chicago’s residents, especially those with a vested interest in reducing traffic and emissions.

“As mayor I am focused on improving all transportation options for Chicagoans,” he said in a statement. “This is another step toward this goal of a comprehensive transportation network and will be a win/win for the city and its residents.”

In addition, Chicago is the second city to beta-test Getaway, the new service that launched in August. It allows car-owners to rent their car out for an extended period of time and is perfect for college students or travelers. On Getaway, car owners are guaranteed $1,000 a month, or Getaround will make up the difference.

“Chicago is a natural fit for Getaround,” added Sam Zaid, the CEO and founder of Getaround (pictured above). “We believe that the city is ready for a new and different way to think about car ownership.”

TransferWise today announced funding of $1.3m for its scheme to sidestep the banks using cheap, peer-to-peer currency exchange. Among the new investors is Max Levchin, the co-founder of PayPal.

Banks charge 3-6 percent more than the mid-market rates for currency exchange. The mid-market rate is halfway between the “buy” and “sell” rate for a particular currency on the global currency markets. Transferwise cuts out the banks by matching your exchange, e.g. from Euros to British pounds, with others who want to turn pounds into Euros. For example, if I want to send 1000 EUR from Amsterdam to the UK, Transferwise would save me around 40 EUR at the current exchange rates.

Transferwise was founded by Taavet Hinrikus, one of Skype’s first employees. Hinrikus is Estonian but lives in London. He says he often needed to transfer money home. An informal market emerged where Estonians would exchange currencies. Transferwise automates this process.

“Banking is broken and people want simple and cheap solutions,” says Hinrikus. “Banking needs to be democratized in the way that low cost airlines did 20 yrs ago in aviation or Skype did 10 yrs ago in Telecoms.”

Since the company launched in January 2011, Transferwise users have exchanged $13 million (10 million EUR) and saved more than $654, 000 (500,000 EUR)  in the process. Most users are pensioners, students or professional expats. The average size of transfer is around 1500 GBP.

As a user, you transfer the money you want to exchange to Transferwise’s UK or Irish account. Your cash is matched with one or many other parties at the mid-market rate currently available on the currency markets. The cash is converted, for example, from British pounds to Euros and transferred to the designated recipient. Transferwise charges 1 GBP for each transfer. No banks or brokers get a commission on the exchange process.

Currently, you can only exchange British pounds to Euros, and vice versa, but Hinrikus told me that additional European currencies will be added in about a month. The American dollar is one of the most requested currencies.

Transferwise is based in London, has 10 employees and was founded in 2010.  The new investment of $1.3 investment was led by IA Ventures, Index Ventures and a group of angel investors.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Venture capital firm investment in peer-to-peer technology continues to build strength, according to a recent VentureTrends report by VentureDeal.

While the term “peer-to-peer” first hit the scene during the first dot-com boom and was associated with file-sharing sites like Napster and Kazaa, today’s peer-to-peer companies focus on making connections between individuals for a wide variety of purposes: Selling goods, finding a place to stay, exchanging advice or lending money. It’s part of a multi-industry trend towards more democratic ways of managing markets, where transactions and ideas are crowdsourced instead of going through a central hub or a small group of experts.

VCs are continuing to support peer-oriented companies, whose overall reach extends across a number of sectors. An initial public offering remains unlikely in the near future due to the relative immaturity of new entrants, with the possible exception of room rental marketplace Airbnb. Still, venture investors should be able to expect interesting M&A exits.



Recent History

2006 – 2007: A number of companies received funding for their applications, which were designed to enable “peer-to-peer” collaboration with online tools. An early entrant was handmade goods marketplace Etsy, which received $1.6 million in seed funding from Union Square Ventures. Another company was Inigral, a San Francisco-based company intent on developing software for the educational sector. It received $580,000 in Series A funding from the Founders Fund for its software that enables collaboration between students, their peers and instructors. The company has since received another $6.5 million in follow-on funding.

SocialPicks, a “community where stock investors exchange ideas and track performance of financial bloggers,” raised half a million dollars from Bay Partners in its first round of funding. The company was later acquired by stock market data and syndication tools provider FinancialContent.

2010: Room-rental marketplace Airbnb exploded onto the scene with its peer-to-peer marketplace aimed at the global accommodations marketplace. The company closed a $7.2 million series A round in 2010 and followed it with a $112 million series B funding in 2011 and is backed by a syndicate of top-tier venture capital firms and international investor DST Global.

Today: A current trend is veering toward peer-to-peer financial services, such as money transfer and lending platforms sites like peerTransfer and SoMoLend. This is in part due to users becoming increasingly comfortable with conducting business online and the success of crowdsourced microfinance sites like Kiva and Kickstarter. peerTransfer calls itself the “pioneering low-cost online international money transfer and global payments” company. SoMoLend is developing a peer-to-peer lending platform for small businesses and was seeded with $310,000 by Cincinnati, Ohio-based public-private group CincyTech.

Charts

The number of companies funded in this sector peaked in 2007, but a healthy number of companies (10) received VC financing in the first three quarters of 2011.

Excluding Airbnb, aggregate funding amounts in the subsector have been relatively stable over the last five year period, with 2011 showing a material uptick.

This investment has a strong regional flavor: The California and the Northeast regions have accounted for nearly 80 percent of peer-focused technology fundings over the past five years.

As part of the larger consumer web spectrum, peer-to-peer applications are in high demand. The near future will no doubt see expansion of peer-to-peer models to other industry verticals. For example, consumers can now rent out their own parking spots at Park at My House. With social media becoming embedded into most avenues of the user experience, peer-focused technology companies can leverage social network access to drive user adoption rates.

Whether or not they can develop significant IPO offerings remains to be seen, but depending on market traction and strategic importance to acquirers, M&A exits seem the most likely outcome for smaller niche-market oriented companies.

VentureTrends is a research service of VentureDeal, a national venture capital database based in Menlo Park, Calif.

Based near the OWS encampment in San Francisco’s Justin Herman Plaza, Prosper is using crowdfunding site Indie Gogo to host its 99 Sandwiches campaign, raising money to donate 99 sandwiches per day to feed the protesters.

But Prosper’s own platform has the power to do more than donate sandwiches. It could shake up the banking industry at large, if its model catches on.

“Everybody knows that banking is broken, the system is broken,” Prosper co-founder and chief executive officer Chris Larsen told VentureBeat at Crowdconf, a crowdsourcing conference in San Francisco, today. “There’s no reason with the technology we have today, all this great stuff, that you couldn’t completely rewire banking in five years.”

That’s a bold claim.

Prosper makes it possible for individuals to lend out money and earn interest  on the money they lend, which has been the sole province of banks. But the reason this was not possible before wasn’t lack of technology, but because of regulations meant to protect banks.

If successful, Larsen thinks that the future of the banking industry could be Silicon Valley, not Wall Street.

“You need banking, but you don’t need banks,” said Larsen.

In order to launch his company, Larsen invested $10 million and spent five years fighting through a bramble of regulations meant to protect banks and stifle innovation. As evidence of the banking industry’s hold over the political system, Larsen pointed out that there are 61 members of the House Committee on Financial Services, the legislative entity that governs banking and finance. He said that there are perhaps two startups that exist today that are able to charge interest on peer-to-peer transactions, out of as many as 100 that were started around the same time as Prosper.

In a recent blog post, “Why Hasn’t a Facebook of Banking Emerged,” Larsen implored anti-Wall Street protesters to use new technologies to support the movement, and support innovation.

…[W]hile it’s important to keep up the demands for change, we also need you to start using these new technologies and spreading the word when you find one that excites you. Use a crowdfunding site to support a project, make a $25 bid on a peer-to-peer lending site. Start-ups are, well, start-ups, and every show of community support could make the difference between obscurity and escape velocity. Vote with your wallet.

This last point is an important one.

Larsen does, however, think there’s a role for banks in preventing their own demise, and he encourages them to make their infrastructure available to startups, as a platform for innovation.

“[Y]ou don’t have to just stand by and get pummeled….Even if these start-ups are tiny now and even if their stated mission is to destroy your franchise, partner with them. Technology is not going away, it’s accelerating with or without you. It’s time to stop cutting your R&D budgets and start embracing new, big ideas.

While Chase bank may have an iPhone app that allows customers to make deposits to their accounts by taking photos of checks, Larsen says this type of solution is “bolting on little pieces to a system that isn’t serving people well.”

Prosper has funded more than $271 million in person-to-person loans to date. As a startup, it has received $74.5 in investment from Jim Breyer of Accel Partners; Tim Draper of Draper Fisher Jurvetson; Jerome Contro of Crosslink Capital, CompuCredit; Omidyar Network; Capital One Co-founder Nigel Morris of QED Investors; Court Coursey of TomorrowVentures and Larry Cheng of Volition Capital.

Larsen’s last company was eLoan, which he co-founded in 1998, and eventually took public.

Prosper is going to need luck, time and a lot of support if its going to have a chance of taking on the multi-trillion-dollar financial industry, which accounts for 7 to 8 percent of the U.S. gross domestic product, twice as large a proportion as it commanded in the 1960s. Chances are slim that executives at banking giants like Citibank or Bank of America are worried much about Prosper, if they have even heard of it.

Such long odds don’t daunt Larsen, who has passion to push him forward.

“We’re in a crisis here. We have a yield-starved world, and we have a credit-starved world, which is kind of funky. That means banking is truly not working.”

Related articles

• Protestors block bank entrance, snarl traffic in San Francisco (venturebeat.com)
• Dylan’s Desk: Is it time to occupy Silicon Valley? (venturebeat.com)
• Lendio and Prosper.com Bring Personal Loans, Affordable Capital to Small Businesses (prweb.com)

This was the startup’s fourth round, and it represents a break in Union Square co-founder Fred Wilson’s pre-2008 investment philosophy.

For several years, Wilson, a veteran investor and blogging firebrand, had held the opinion that seed investments were actually less risky than late-stage deals. In 2007, he wrote on his blog, “As a VC making direct investments in companies, I think we take on way more risk when we invest in a later stage company than an early stage company…

“When I go back over time and look at my personal portfolio, some 50-plus companies, I see this fact so clearly. The returns are higher on the seed and first round investments I’ve made… I suppose that’s also an indication that I am better at seed and early stage investing and that there are others who are better at later-stage investing than me.”

Late-stage investment has become something of a trend since the market crash in late 2008. In 2007, early-stage investments were slightly higher than late-stage fundraising. However, the balance has shifted, with slight differences giving way to entirely uneven divisions between early- and late-stage activity.

In 2009, VC fundraising hit a six-year low, meaning there would be less money to go around for the quarters to follow. In the immediate aftermath, early-stage investments, with their smaller deal sizes, were an attractive option for many; but eventually, multi-stage funds became more popular and investors became more squeamish about early-stage funds.

In September of 2009, Wilson wrote about VC investing during a downturn, saying, “Early in a cycle, you want to back young companies at bargain prices… Late in a cycle, you want to back established companies that need a ‘last round’ to get to break even.

“I’ve been in the venture capital business since 1986 (that was a down cycle) and I’ve seen this happen at least three times, probably four times now.”

Then, late last year, Wilson and Union Square Ventures raised $200 million to establish a late-stage fund. The fund’s first deal is the $25 million Series D for Lending Club. The round is small by late-stage standards; it’s exactly the same amount Lending Club raised for its third round one year ago.

Of today’s investment, Wilson writes, “We’ve been interested in peer-to-peer lending marketplaces for about five years now. We’ve studied the category closely but have never found the right entry point. We have watched Lending Club innovate by delivering better risk assesment and mitigation which has led to better returns for lenders.”

In a word, Wilson and Union Square see Lending Club, like most other strong late-stage startups, as a sure bet with a relatively quick return on investment.

Lending Club recently passed $325 million in total loan originations; the startup is currently giving out more than $20 million each month in prime consumer loans.

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Skype suffered a widespread and lengthy outage today with its Internet calling service.

The company said in a post that problems with the Skype network’s “supernodes” are responsible and could take hours more to fix. Skype apologized to users. But the lesson is clear, as GigaOm noted. If you rely as a business on cloud-based communications tools, it pays to have a backup.

Skype spokesman Peter Parkes said, “Skype isn’t a network like a conventional phone or IM network. It relies on millions of individual connections between computers and phones to keep things up and running.” That is, Skype uses a peer-to-peer model in order to connect callers.

The supernodes are like phone directories for Skype, and a number of them failed today. As we speak, Skype isn’t loading for me right now. Lots of people are affected. Skype accounts for 0.57 percent of all Internet traffic. For the first six months of 2010, Skype logged 88.4 billion minutes of Skype-to-Skype calls.

[update: Skype said in a tweet that it is now returning to normal]

[image credit: ReadWriteWeb]

July 9-10, 2013
San Francisco, CA

Tickets On Sale Now

Kontiki, a startup with clever Web video technology and a storied past in Silicon Valley, announced today that it has raised $10.7 million in its second round of funding.

Kontiki gives companies a way to publish and stream video content, much like YouTube, within an internal network by using peer-to-peer technology similar to torrent programs like BitTorrent.

The company was originally backed by the late former Netscape executive Mike Homer, who was widely mourned in Silicon Valley when he died in 2009. Kontiki got a second chance at life as a startup, however, when it was spun out of VeriSign in 2008, which had acquired it in 2006.

Instead of hosting entire videos on remote databases, users looking to watch a live stream or video pull little bits of data from machines across the company to speed up the process. Kontiki provides companies with both a way to access static video, like YouTube, and stream live video content like company meetings.

Because the service uses peer-to-peer technology, rather than traditional video hosting sites like YouTube, its video transmission speed automatically scales to how large the company is, said Eric Armstrong, chief executive officer of Kontiki. That means companies don’t have to buy additional servers if they continue to grow — as soon as they add a new machine for a new employee, it automatically increases the power of the network.

The funding is pegged to help further develop their Web-based video publishing service, with which Kontiki hopes to triple their user base of more than 1 million enterprise customers. Enterprise video publishing looks to be about a $1.5 billion market, Armstrong said.

Most company networks aren’t built to handle large-scale data transmission like video — just “burst-y” transmissions like email and messaging, he said. That’s where the idea for Kontiki came in when the technology was originally developed in 2000.

The Sunnyvale, Calif.-based company has raised $15.7 million in two rounds of funding to date, and has 35 employees. The most recent round was led by MK Capital, New World Ventures and Cross Creek Capital.

[Photo: dpsstyles]

The New York Times reported that law enforcement will seek to get lawmakers to approve a bill that will expand their powers to monitor computer communications that are currently havens for secret communication. Jack Dempsey, vice president of the Center for Democracy and Technology, told the newspaper that the proposal has huge implications for the structure of the internet.

The telephone network was easy to tap because phone companies controlled it through centralized switches. The FBI could place wiretaps on any phone line in the country. But the internet is decentralized. With peer-to-peer technologies, users communicate directly with each other. There is no “central switch” that could be the interception point for a wiretap.

If companies such as Skype and Facebook are forced to design holes in their networks so that FBI officials can listen into conversations, that will re-centralize the networks, raise costs, and possibly introduce vulnerabilities to the software that hackers could exploit.

These problems are so fundamental that law enforcement has been stymied. If they think there is a way around these problems, that would be a new development. But there is no indication that is the case. If a law were to pass without ensuring civil liberty and security, it could erode users’ fundamental freedoms and could hobble the U.S. version of the internet, forcing companies to move overseas. Hopefully the feds will give this bill a lot of though before they move forward.

[Image credit: counter surveillance devices]

Scayl is one of 70 companies chosen by VentureBeat to launch at the DEMO Fall 2010 event taking place this week in Silicon Valley. After our selection, the companies pay a fee to present. Our coverage of them remains objective.

Today at the DEMO conference, the team that brought you Morpheus, one of the earliest peer-to-peer file-sharing networks, is revamping the way we email files to each other with HDemail.

Scayl’s HDemail offers users a more secure, end-to-end encryption email service that helps prevent phishing attempts and allows users to transmit large files as attachments.

Scayl removes the size limitations of attachments by allowing multiple sources for an attached file — basically, if three users have the same photo album, the email recipient receives the information from all three users.

Bill Kallman, founder and CEO, said he expects the software to be available on any Internet-equipped device — anything from smart TVs to iPads.

There are already a few file-hosting services, like Rapidshare, Megaupload and Drop.io, but none of them work the way Scayl does, Kallman said.

Scayl launched in 2007, and now has seven independent contractors and has raised about $500,000 through founders and angel investors. The most recent seed round closed last quarter.

http://c.brightcove.com/services/viewer/federated_f8/980795693