Brian O’Malley, General Partner at Battery Ventures sits down with Daily Deal Media Founder and CEO, Boyan Josic, at the Business Insider Social Commerce Summit 2012, to discuss his Venture Capitalist outlook of the social commerce industry. During this exclusive, extended cut of the interview, O’Malley shares his industry assessments through a look back at the past year up to the present state of the social commerce and daily deal industry, and also provides insightful predictions of what to expect in 2012 and upcoming years.
Overview of Battery Ventures and Brian O’Malley
The interview begins with an overview of Battery Ventures, and O’Malley’s focus in the firm.
“We’ve got gbout 3 Billion under management. Our current fund is 750 million and we’re about a quarter of the way through it. We invest internationally. We’ve got an office in Israel, Boston and I work out of the Silicon Valley office.”
The firm invests in a wide range of company segments and phases. A technology focused company, Battery Ventures invests in businesses in focused in clean tech to digital tech and just about everything in-between.
“We do all sorts of stages and all sorts of sectors. We’ll do your stereotypical, kind of two guys, dog and a grange and we’ll do a 50 million dollar, late stage growth equity deal. We do communications investments, clean tech, semi-conductors, and I personally I spend most of my time in the in the consumer Internet world and the underlying software platforms that those companies use to better understand their customers and sell more things to more people.”
The Deal Industry
What do you look for and what’s working what’s not working?
“One of the biggest advantages for daily deal sites is also one of the biggest disadvantages, and that’s that they’re relative cheap to launch. It doesn’t cost a lot of money to send someone an email. The complexity is in a lot of areas.”
Specifically to deal industry investments, O’Malley suggests two major questions to consider: Merchant inventory source(s) and general deal perspective.
1 – How do you source great inventory from a merchant? There’s a higher hurdle you need to get over … and there’s some fatigue on the merchant side. You need to have a unique audience or a large audience.
2- What’s your perspective as a deal site? It was mentioned earlier at the conference that throwing out more teeth whitening isn’t going to get the job done. Sites that have focused more on a lifestyle audience and areas that have mattered more.
“You either go big, … or you really define a niche audience (with) offers that don’t make sense for the bigger guys- you provide merchants a unique opportunity to get in front of the people they want to get in front of.”
Battery Ventures and Coupa
O’Malley mentions the firms investment in Coupa, a software “offering,” as an example:
“… Coupa, today is more of a procurement software offering … the ‘next generation’ of a purchasing solution.”
Coupa has evolved from a product in demand, to a supplier of that product.
The Second Generation of the Daily Deal Industry
What do you see in 2012 ?
“… There’s a complexity with just sending people emails where the headline is just “x% off”. I think you need to find different channels as a veil to get deals in front of people.”
O’Malley goes on to explain a predictable shift from the first generation of daily deal companies to a different, more of what he calls a “yield-management” focus.
“… Less focused around the consumer, and more about when do certain merchants need to manage inventory. Tends to work well I service industry spaces… hotels/restaurants … If the table goes unsold they are not going to get that money back.”
Battery Ventures and HotelTonight
One of the Battery Ventures investments, HotelTonight, is holding true to their niche focus.
“(HotelTonight is) specifically a mobile app focused on last minute hotel bookings. Because they are focused on a group of hotels that know that their odds of filling that room, that day of are relative low they can structure: A – great deals and B – can work with properties that historically wouldn’t work with daily deal sites … They initially show up to get great deals, and retention is very high because it’s a much simpler purchasing process … Four clicks to book a hotel.”
How Companies Should Use Daily Deals
O’Malley sees daily deals as a part of the equation. Essentially deals are a large first step to attracting people to a product or service. However the deals alone aren’t enough to gain repeat business no matter how great the discount. Rather the experience itself is what attracts repeated business and a high ROI.
“The deal side is a great way to get people excited. But people ultimately stick around because it’s a great experience.”
Restaurants, for example, an industry notoriously associated with and experiencing in daily deals, can benefit if the correct measures and goal model is applied.
“The top restaurants tend to sell out … If you focus on a different category of restaurants where their issue isn’t filling tables but it’s more along the lines of maximizing revenue, there are additional opportunities there.”
O’Malley on the “Leaky Bucket Problem”
“At the end of the day, new customer acquisition is incredibly important … It’s not good enough to just put an ad in the yellow pages … the best buesinss are those that retain customers … These aren’t long-term contracts. Merchants are opting in every time. You can’t be asleep at the switch and be successful at this. “
Advice for Entrepreneurs Seeking Investments
1 – Qualify your audience. 2 – Understand what those investors have done in your space historically… Every investor has things they are inherently excited about…”
O’Malley suggests that while it may be less difficult, in some respects, to initially obtain an investment, it’s important to do so with caution.
“It’s easier to get divorced in this country than to get rid of your investors.”
Although investments may be available, it is not always in the best interest of the entrepreneur to proceed with the first offer. Most important is the “right” investors.
“A lot of people are competing to get involved early … The burden is now on the entrepreneurs to pick the right investors … Get what you need to get done to get the right people around the company.”
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About Battery Ventures:
Battery Ventures is an international venture capital firm with a focus in technology driven companies. The firm has raised $4 Billion through over 25 years of technology investing. Since 1983 Battery Ventures has mainly focused on technology sectors partnering with management teams and entrepreneurs across the world.
Recent investments include Viddy. (2/7/12- $6M), Continuuity. (1/25/12- Series A, $2.5M), Neolane. (1/9/12 – $27M), HotelTonight. (11/18/11- Series B, $9M), Kontagent. (11/10/11 – Series B, $12M), Gogobot. (11/3/11 – Series B, $15M), Tracelytics. (11/3/11 – Seed $600k), Agari Data. (11/2/11 – Series A, $2.5M), STELLAService. (11/2/11- Series A, $5M), Sociable Labs. (10/26/11 – Series B, $7M), HiGear. (10/7/11 – Seed, $1.3M), Wikets. (9/27/11 – Seed, $1.5M), Zenverge. (9/26/11 – Series D, $20.5M), FirstFuel Software. (9/22/11 – $2.4M), ActivePath. (9/19/11 – Series B, $10M) and LiveIntent. (9/15/11 – Series B, $8M).
For more information, visit www.battery.com.