A large global growth fund could allow Sequoia to do larger deals as it expands its international presence. In May Dan Primack reported that the firm was looking to raise at least $1 billion in aggregate over several funds, and the firm reportedly raised $975 million for three early-stage venture funds this summer, the Wall Street Journal reported at the time. The firm has been expanding through those funds to areas like China and Israel for new investments, as well as expressing interest in Brazil.

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Based in Sunnyvale, Calif., Ruckus makes both enterprise and carrier-grade Wi-Fi gear, which mobile operators use to augment their 3G and 4G mobile broadband networks. Wi-Fi has been a hot space in wireless in the last two years, as carriers look for ways to add cheap and plentiful capacity. Ruckus and its biggest competitor BelAir Networks both benefited from the trend, landing huge carrier deals to build massive outdoor Wi-Fi systems. BelAir got acquired by networking giant Ericsson, but Ruckus opted to remain independent, partnering with Ericsson’s competitors.

While the company’s initial investors sold off 1.4 million shares, its largest venture capital investor Sequoia Capital stayed all in and now owns 24 percent of the public company, BusinessWeek reported. The company’s co-founders Bill Kish and Victor Shtrom are remaining with Ruckus, serving as CTO and chief wireless architect respectively. The CEO role remains in the hands of Selina Lo, a veteran of another startup that went public Alteon Websystems.

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When Facebook’s initial public offering wasn’t the kind of high-altitude rocket many investors seemed to be hoping for, it sent shockwaves through the technology sector and the venture-capital industry that are still reverberating. Paul Graham, founder of noted startup incubator Y Combinator, has warned in a note to YC companies that they are going to have to be more cautious now, and other investors have talked about the IPO window for anything social being “slammed shut.” But has Facebook really popped a bubble, or has it just allowed some of the steam to escape from a market that was in danger of becoming overheated?

Much of Graham’s note to Y Combinator startups and founders deals with the intricacies of venture funding — convertible notes and price caps and the potential danger of “down rounds.” But his message is fairly clear: that startups should hang onto whatever money they have already raised so far, and that they should also be very careful about trying to raise any more money at this point, because valuations are likely to have fallen. Says Graham:

If you haven’t raised money yet, lower your expectations for fundraising. How much should you lower them? We don’t know yet how hard it will be to raise money or what will happen to valuations for those who do. Which means it’s more important than ever to be flexible about the valuation you expect and the amount you want to raise

The best place to be is not to need money

As startup advisor Semil Shah noted on Twitter, there’s a reason why companies like Quora, Spotify and Pinterest all raised large amounts of cash in the weeks leading up to the Facebook IPO, when the frenzy of interest around the issue was arguably at its peak. Quora, for example, raised $50 million even though the founders admitted that they didn’t really need it — since they still had more than half their initial funding round sitting untouched in the bank. The best place to be, as Graham notes, is “not to need money.”

Union Square Ventures managing partner Fred Wilson has a somewhat different take from Graham’s in a blog post responding to the Y Combinator note, one that puts the Facebook IPO and its resulting valuation in perspective. As he points out, even after dropping 30 percent from the price it went public at, something that many have described as a disaster — or at least a severe disappointment — Facebook is still worth about $60 billion, or roughly 10 times its estimated annual revenue and 25 times its estimated free cash flow. In other words, still a pretty hefty valuation:

Clearly Facebook is a premium company and commands a premium valuation and entrepreneurs should not expect to get 10x revenues and 25x EBITDA for their companies in a sale or an IPO. But even at half those numbers there are fantastic returns for investors and entreprenuers to be had.

As many technology and investing insiders have noted, Paul Graham’s note is similar to one that legendary Silicon Valley venture fund Sequoia sent out to its portfolio companies in 2008, entitled “RIP Good Times.” Although the slideshow presentation was about the environment created by a variety of macro-economic factors, including the Wall Street derivatives debacle and an overheated housing market, the message was that companies should control their costs and manage their expectations because money was going to be tight.

Good companies will always be worth investing in

That was probably good advice, and focusing on those factors is arguably something companies should do at almost any point in an investing cycle. But as a number of people have pointed out — including internet entrepreneur Russell Fradin, former CEO of Adify — the time following that Sequoia presentation was arguably one of the best times to invest in startups in the past decade. Funds like Union Square and others have made a substantial return on companies like Twitter, Tumblr and of course Facebook itself, and many of those companies don’t seem to have had much difficulty in raising money when they needed to.

In the end, the Facebook IPO and the scepticism it has triggered about internet valuations could be a good thing, if only because it may have corrected some of the over-inflated expectations about anything connected to the social web. In a discussion on Hacker News triggered by Graham’s note, angel investor and startup founder Chris Dixon points out that investing downturns are sometimes a figment of the imagination, and that both companies and investors need to take such pronouncements with a grain of salt:

This happens every couple of years in tech. I’ve personally witnessed 3 downturns now. One was real and two were arguably the best time to start companies. Raising money might be harder, but generally only for bad companies.

Graham himself makes a similar point — namely, that there is a certain Darwinian aspect to the funding cycle. The companies that are most at risk when the financing tap gets turned down a notch, he says, are the ones who spent too much or got irrational during the good times, the ones who have “easy money built into the structure of their company” and therefore “are led to spend a lot and to pay little attention to profitability. That kind of startup gets destroyed when markets tighten up.” Graham’s advice? “Don’t be that startup.”

Post and thumbnail images courtesy of Flickr users Photo Clinique and See-ming Lee

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But that doesn’t mean Germany’s investors are just sitting around and accepting their fate. Take Berlin-based Earlybird, which recently set up a $100m seed fund with a focus on the city: it has just made a hire that should make it a lot more competitive. The firm has taken on LinkedIn co-founder Konstantin Guericke as a venture partner based in Silicon Valley, with the aim that he can act as a bridge between the two hubs.

Guericke, who was born in Germany, used to head up LinkedIn’s marketing efforts and was also CEO of VoIP firm Jaxtr. The idea now is for him to work his magic on Earlybird’s Berlin investments, advising them on product and marketing strategy and helping them to break into the U.S. market.

But how much of a chance does a Berlin startup have getting recognised in the Valley?

“Silicon Valley is very meritocratic,” the veteran told me. “Being from another place doesn’t create any advantage or disadvantage. It’s like, ‘What are you trying to do in the world and what traction do you have, and do we feel we can trust you?’. If you’re looking for investment from Sequioia or Greylock or one of those top firms, that definitely matters.”

Feet on the ground

What the big Californian money-people also want is physical presence. It’s all very well for them to throw their money at a German firm, but how do they keep an eye on it and make their voices heard? For Earlybird’s investments, that’s where Guericke comes in.

“Earlybird wants to build globally successful companies,” he said. “But one reason VC firms in Silicon Valley don’t invest in German companies is the issue of where they have their board meetings. I will be acting as the board member on behalf of Earlybird for those companies.”

And according to Guericke, it’s not just a matter of Berlin firms needing to break into the Valley. He pointed to a technical talent shortage in the centre of the tech world, due to stiff competition between giants such as Google and Facebook, and suggested deals could be struck based on the strengths of “the pool of German engineers.”

So why is it that German companies are only really paddling across the pond now? Why does hardly anyone in the Valley know any German software firm apart from SAP? Guericke’s got an interesting theory on that: the country’s too big.

“To some extent, Germany has had both the fortune and misfortune to be a sizeable market,” he explained. “No Israeli wakes up and says, ‘I’m going to build a great internet company for Israelis’. The same is true for Denmark or Finland or Sweden — a lot of companies there start up to operate on a global scale.”

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Qualtrics CEO Ryan Smith

Qualtrics, a decade old marketing research company in Provo, Utah has raised a $70 million first round of venture capital from Sequoia and Accel Partners. But this isn’t a growth financial deal, despite Qualtrics‘ age and the large amount. This is a deal that is designed to scale Qualtrics like a 2-year-old startup. For Qualtrics this means going from 200 employees to 450 employees.

Till this round of financing, Qualtrics has been a bootstrapped company and has declined investment since its founding in 2002. “In the early days when we were refusing to take capital I felt like the weird kid on the block,” Ryan Smith, chief executive and the founder of the company said. “I kept having to tell myself it was okay.”

So why now? “I wanted to turn one dollar into five, and only venture capital can help you scale like that,” Smith said. Most of the new cash will be spent on scaling up and hiring more people. The company is looking to add 250 jobs as of today across company’s operation’s to support two recently launched products Site Intercept and Qualtrics 360. He wants Qualtrics to expand internationally.

So what does Qualtrics do?

Qualtrics doesn’t disclose revenue, but Smith said the company has experienced “triple-digit-growth” and it certainly has a huge base of customers in academia and the enterprise. Qualtrics offers customers a way to get human feedback on their products. It began as a surveying tool used by academics and has since morphed into a SaaS-based analytics and data collection suite of products that can question customers, random passersby and even a company’s employees.

The common thread running through Qualtrics’ three products is a fast connection to a real-person and then turning the feedback from that person into data that can then be analyzed. It’s not a new problem for business, but the maturity of the web and targeting tools means that Qualtrics can perform surveys faster, cheaper and at the exact moment someone is encountering the product.

Golden Oldies

The venture capital community has been enthralled by big data companies and are looking for opportunities that go beyond a couple of million dollars and have established customer bases. This has given a shot-in-the-arm to many elder companies such as Qualtics and Vigilent, who are now raising VC money. Accel Partners has been particularly aggressive.

Accel, for example, invested in Code42, a Minneapolis, Minn.-based company that made backup and recovery software software for enterprises. It was another large-private company outside of Silicon Valley that scored a large round of investment to expand its product in ways that a growing web and better data analytics allowed.

It’s another way of looking at the investment opportunity associated with big data. Instead of new startups, VCs are investing in existing businesses that see a lot of information and then trying to layer an analytics or collection product on top of them. It’s kind of like a venture industry version of “upcycling.”

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Customer rides of the Model S Beta

One of the hottest electric vehicles, Tesla’s second car the Model S, won’t be available until 2012, but you’ll have a chance to check out the Beta version of the Model S at GigaOM’s RoadMap event this Thursday, November 10th, in San Francisco — that’s over a half year before its available to the public. Our RoadMap conference will delve into how connectivity is changing everything, from media to homes to cars, and will feature speakers like Sequoia’s Michael Moritz, Airbnb’s Brian Chesky, Square’s Jack Dorsey, CBS Interactive Jim Lanzone, and Nest Lab’s Tony Fadell.

Tesla unveiled three Model S Beta cars to the public just last month (beta cars are the version of the car right before it goes into production). RoadMap is one of the first places you’ll be able to check out the Model S Beta after their public debut. Tesla plans to start delivering its first Model S cars to customers no later than July 2012, and the cars are sold out throughout 2012.

RoadMap will touch on how connectivity is changing transportation, and how we use our cars, as well as how connectivity will change how we use energy in our homes. iPod architect Tony Fadell will also talk about how his new learning thermostat will be able to cut home energy use by 20 to 30 percent — the Nest thermostat is also sold-out until 2012.

I’m very excited to be speaking at RoadMap this Thursday — I’ll be interviewing Airbnb’s Chesky! Come join us.

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Sequoia will be crowdsourcing its job application process through Talenthouse, a Palo Alto, Calif.-based startup that allows companies and artists to hold design contests for things like album art and logos. According to Sequoia’s design job contest page, which will go live on Talenthouse Wednesday:

Sequoia invites graphic designers to submit their work for a chance at 1 of up to 20 full-time, permanent positions at one of their portfolio companies in the fields of consumer Internet and mobile solutions. This is your chance to get your work in front of some of the hottest companies and get to work in Silicon Valley.

Sequoia will choose the winners from all submissions with special consideration for the top voted entries and for those with user interface experience. Up to 20 designers will be selected to be placed on Sequoia Capital’s shortlist and shared with their portfolio companies.

Perhaps the most surprising part of it all? Sequoia is not currently an investor in Talenthouse. A Talenthouse spokesman tells me the company is backed only by its own CEO Roman Scharf, European seed funding firm 3TS Capital’s Cisco Growth Fund and a number of angels. To date, Talenthouse has taken on about $7 million in outside capital, he said.

Crowdsourcing is hot, particularly in the graphic design space — graphic design marketplace 99Designs recently closed on a $35 million series A round led by Accel Partners. Even so, the high profile utilization of Talenthouse seems like a bold move for a Sand Hill Road stalwart like Sequoia. Could the firm’s use of Talenthouse for its latest hiring effort essentially be a very public tire-kicking session?

“Talenthouse cannot comment on venture capital firms it may or may not be speaking with,” the company’s spokesman told me. Well, whether it’s speaking with Sequoia or not, one thing is for sure: They are working together. And that in itself could speak volumes.

Image courtesy of Flickr user Tess Aquarium.

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Seeo has been rather quiet about its battery innovation, but we do know that the company has been developing a nano-structured, lithium-polymer battery, and in particular, has been working on a solid electrolyte that was developed at Lawrence Berkeley National Lab. The material, which Seeo began licensing from the lab in 2007, allows for a more stable battery with higher energy density, in contrast to the more easily flammable liquid electrolyte that can present a safety risk in some conventional lithium-ion batteries.

Seeos batteries are supposed to be able to be operated at a much higher temperature than competing batteries, which means they could be used in environments with extreme temperatures — like outdoors attached to a solar system — and the team is looking at using the batteries for electric vehicle applications, too.

Seeo lists other investors on its website including Google’s philanthropic arm Google.org and Presidio Ventures, and Seeo also won a $6.2 million grant from the Department of Energy to develop and deploy a 25 kWh prototype battery for the power grid. Back when that was awarded, the DOE described Seeo’s grid project as demonstrating “the substantial improvements offered by solid state lithium-ion technologies for energy density, battery life, safety, and cost,” and the technology as targeting “utility-scale operations, particularly community energy storage projects.”

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The launch of a new mobile app called Color on Wednesday has caused a lot of buzz — not so much because of the app itself, but because of the massive sum of money the company raised before it even launched. A group of funds, including Sequoia Capital, gave the company $41 million, and Sequoia’s chunk (as Color proudly noted) is more than the fund invested in Google. Is this new app really as revolutionary as that implies? Maybe. But what’s more likely is that the VCs involved are betting the team behind Color will come up with something worthwhile for that $41 million, and they don’t particularly care what it is.

Color and its supporters claim the app creates a new kind of paradigm for photo sharing, in the sense that you share pictures not just with friends or a small group, the way you would with Instagram or Path, but also with people who happen to be in the same place you are. This makes it more like Foursquare — or a group-messaging app like Beluga — than existing photo-sharing services. And the app supposedly learns from your behavior and creates ad-hoc groups based on whom you are interacting with (see Darrell Etherington’s post for a more in-depth look at the app’s strengths and flaws).

Do people want to suddenly share photos with random strangers based on the fact that they happen to be at the same club? That’s the bet Color seems to be making. Which — as more than one person has observed — makes it a little odd that the company didn’t launch at SXSW, the giant music and technology festival that just wrapped up in Austin, Texas. An app based on something so real-time and social seems almost perfectly matched to that kind of social environment. (Color’s huge funding round has already sparked a number of satirical takes on the app.)

Sequoia said on Twitter that a company like Color comes along once or twice in a decade, and that’s why it decided to give the startup more money than it ever has to a pre-launch company. (Venture investor Eghosa Omogui says the funding implies a post-money valuation that is likely north of $100 million.) But Sequoia is likely talking more about the team involved than the app itself, since the company is headed up by Bill Nguyen — who sold his music-sharing service LaLa to Apple in late 2009 — and includes Peter Pham, founder former CEO of BillShrink, as well as former LinkedIn Chief Scientist DJ Patil.

Is betting that kind of money on a team, regardless of their idea, a good bet to make? Some would argue it is. In a recent blog post, Union Square Ventures partner Fred Wilson wrote about how much he regrets not investing in what became AirBnB. He thought the idea was dumb, but the team behind it was clearly motivated and represented all the things he likes to invest in. In other words, the team was more important than the idea they were pushing at the time. (Paul Graham of Y Combinator has posted the email exchange in which he tried to convince Wilson to invest in AirBnB). “We missed Airbnb [sic] even though we loved the team,” Wilson says. “Big mistake.”

Chris Dixon, an angel investor and co-founder of Hunch.com, made a similar point in a recent blog post about Dropbox. Dixon says when he first encountered the company, he thought it was a copycat file-sharing service just like hundreds of others that had been launched around the same time, and he figured its chances of success were slim to nil. Later, the company raised money (from Sequoia, coincidentally) and Dixon says he eventually realized the team was what was important, not the idea.

I think the only way they could have made that decision was by ignoring the space, competitors, etc. and simply investing in a super talented person/team. Dropbox is one reason I now have a strict rule to only invest in teams… you should always invest in people over ideas.

So will Nguyen and the rest of the star team behind Color manage to do something that is worth all of that investment? That’s the $41-million question. One thing is for sure: Another photo-sharing app, regardless of its unusual features, probably isn’t going to cut it. And it’s probably worth mentioning that the Valley is littered with the skeletons of high-profile startups that launched with big ambitions and lots of money.

Post and thumbnail photos courtesy of Flickr user Julian Fong

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With all the fuss surrounding the recent “AngelGate” meetings and the tension between angels and super-angels and traditional venture funds, it’s instructive to listen to one of the legends of the Silicon Valley VC business — Sequoia Capital founder Don Valentine — talk about the approach and the thinking that led to his investments in companies like Apple, Cisco, Google, Yahoo and Zappos. In the video embedded below, he talks to a group of students at the Stanford University Graduate School of Business about what matters and what doesn’t.

Valentine says that many people assume that Sequoia has been so successful because the fund backs “the best and brightest, the greatest managers and all that stuff [but] we do not.” The only thing that really matters, he says, is the market.

“We have always focused on the market — the size of the market, the dynamics of the market, the nature of the competition — because our objective always was to build big companies. If you don’t attack a big market, it’s highly unlikely you’re ever going to build a big company.”

As a result, the Sequoia founder says that the fund isn’t really interested in where an entrepreneur went to school, or whether they have any actual business credentials — all Sequoia is interested in is the size of the potential market they are trying to attack, and the potential value of the problem that they are trying to solve.

“We don’t spend a lot of time wondering about where people went to school, how smart they are and all the rest of that. We’re interested in their idea about the market they’re after, the magnitude of the problem they’re solving, and what can happen if the combination of Sequoia and the individuals are correct.”

In some cases — as with Apple — an idea about the potential market can lead to multiple investments in all of the various players in that ecosystem, Valentine says. Apple “had in mind the idea of you all having your own computer,” he tells the graduate class at Stanford, and the implications of that involved the need for memory makers and disk-drive companies and manufacturers of all of the other parts that were needed for personal computers. So Sequoia wound up investing in more than 15 companies in the PC category, including game-maker Electronic Arts, which was created in the Sequoia office.

The Sequoia founder also says that he had an advantage over some other VCs because he “could see the future,” meaning he understood the transformation that personal computers and microprocessors were going to unleash because he worked at Fairchild Semiconductor and co-founded National Semiconductor. For Valentine’s thoughts on Steve Jobs’ marketing abilities, the failure of Sony and Xerox (which he calls “one of my favorite tragedies”), the importance of storytelling and the launch of Cisco, please see the full video embedded here or at YouTube.

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