By Jason Caplain

For the third year in a row, I have asked four leading venture capitalists to look into their crystal balls and make a few 2007 predictions. Here are the ones I asked to participate:

- Roger Krakoff, Venture Partner, Sigma Partners, www.sigmapartners.com
- Jack Biddle, Co-Founder and General Partner, Novak Biddle Venture Partners, www.novakbiddle.com
- Jo Tango, General Partner, Kepha Partners, www.kephapartners.com
- Mike Elliott, General Partner, Noro-Moseley Partners

Tech IPO Market Returns; Web 2.0 Takes on Real Definition and The Internet Emerges as a Replacement for TV
Roger Krakoff, Sigma Partners, www.sigmapartners.com

1. Wireless will continue to increasingly become the focus of computing. Faster networks, more powerful phones with better screens and keyboard/inputs will permit a further separation from traditional desktop (even laptop) computing. On the consumer side GPS enabled solutions will increasingly power smart social and shopping applications that will enrich the consumer experience.

2. Web2.0 will begin to take on real definition. The promise of a new programming and computing paradigm called Web2.0 will finally begin to take commercial shape as many of these start-ups emerge from incubation to challenge existing vendors in a wide-variety of markets including content management, collaboration, e-learning, desktop applications and even some traditional enterprise solutions.

3. The Tech IPO market returns. Many more technology companies than has been the case in the last few years look to go public. The forces behind this are clear: More than a handful of firms have been patient growing their revenues well in excess of $100m now realize the best potential return to their stakeholders is an IPO / Wall Street is anxious for new issues to represent / With a public currency companies can “roll-up” whole markets to achieve true $1b+ scale.

4. Big Media will become aggressive in response to the many start-ups looking to take their turf. Seeing the incursion of aggressive early stage as well as new fangled internet media companies like Google and Yahoo, traditional media companies will look to aggressively buy capabilities and graft on new capabilities to their business models rather than risk becoming irrelevant.

5. The Internet emerges as the replacement for traditional TV. With the potential to have millions of channels on the Internet AND each and every one of us can now become an over the air producer of content the Web becomes the new broadcast network. Big TV broadcasters fear this but is the genie is out of the bottle. Go long on this one.

6. Open Source / SAAS / VOIP all continue to be important at an accelerating pace… Just don’t get in their way or watch out!!!

Web 2.0 and Google Both Collapse; Institutional Investors Realize Investing in an Important Space Isn’t the Same Thing as Actually Making Money
Jack Biddle, Novak Biddle Venture Partners, www.novakbiddle.com

1st half 2007

1. The web 2.0 advertising model collapses when people realize that Google is every bit as smart as they are cracked up to be…and don’t leave a nickel of EXCESS margin left for their ‘partners’.

2. Google collapses when Advertising Inc realizes ‘bots’ are accounting for most of the page views…and bots don’t buy stuff.

3. Institutional investors realize that ‘participating in an important space’ is not the same thing as actually making money…and they don’t like losing money, which they are now doing in spades.

4. Shortly after….. VC’s have the same cathartic revelation. Between their gasping for air they repeat the phrases ‘long term…patience….long term…patience’…while LP’s repeat the phrase ‘T Bills are positive…T Bills are positive”.

And then in the second half of 2007…

Old school becomes fashionable again.

1) If this was easy, everyone would do it
2) When everyone does it, its too easy
3) When its too easy, no one makes money

So my prediction is that the smartest people on the planet will continue to beat each others brains out to no net good end, for another 2 quarters, until being a doctor, or a lawyer, or an investment banker is hands down the coolest and most lucrative gig.

When venturing is about money, no one makes a dime. When venturing is about pioneering, because pioneering is cool, a lot of innovation takes place.

My prediction is that by the end of 2007, people won’t venture for profit. They will venture to do really cool things, because they can.

And 10 years later…the best of the best will get paid despite the fact they had the time of their lives.

Splintering of VC Firms; Seed Stage Companies Continue to be Underserved
Jo Tango, Kepha Partners, www.kephapartners.com

1. Web 2.0 growth slows: On-line advertising price points have started to flatten as has ad volume. The last time this happened in 2000, it created a massive correction in revenue, and hence, expectations and valuations.

2. Splintering of VC firms: More individuals and sub-groups will spin out of established venture platforms to start their own firms. I predict that in 2007 1 major Boston firm will completely splinter, as will 2 Silicon Valley firms.

3. Increased segmentation of VC landscape: two distinct segments will continue to emerge among VC firms. There will be “venture bankers” who pursue late-stage opportunities and legitimately try to fill the void that Summit and TA have created when the latter started pursuing LBOs.

There will be a sub-group of “venture builders,” who continue to focus on early stage.

4. Seed-stage/start-up opportunities will continue to be under-served:
Even among early-stage venture firms, seed deals are a small minority of the opportunities. Even the early-stage firms have significant capital under management, which forces them towards larger deals.

The Year of Apple; Investment Opportunities Emerge Around Search and Filtering Tools Allowing Users to Cut Through Massive Amounts of “Garbage” on the Net
Mike Elliott, Noro-Moseley Partners, www.noro-moseley.com

1. 2007 will be the year of Apple. Steady growth in the Mac’s market share, especially in the all important entrepreneurial tech community, coupled with the introduction of the iPhone in Q1 and iTV for home entertainment later in the year (both of which will no doubt have a loyal Apple user following), should point to a very strong year for Apple. Look for Apple to be in the videogame console market by year-end as well.

2. The official rollout of WiMAX, scheduled to occur in late 2007, will be delayed again.

3. Security concerns will continue to occupy mindshare for enterprise CIO’s. Even the smallest most nimble and creative technology firms will need to invest considerable time and energy in creating, documenting and maintaining security standards and policies simply to be in position to qualify as a potential vendor for larger enterprises.

4. User generated content will continue to proliferate wildly, creating investment opportunities around search and filtering tools that will allow users to cut through the massive amounts of “garbage” now clogging the net. (Sphere, for example, is an interesting new company providing highly filtered search capability for blogs.) Focused, edited and monitored Web2.0 communities will rise rapidly with the aid of tools developed by a host of companies, such as Vox and Ning, providing users all the functionality needed to develop niche sites with capabilities similar to YouTube, MySpace, Flickr, etc. – but in tightly controlled communities.

5. Vista’s built in desktop “lock-down” feature for corporate CIO’s may result in an unexpected boost in PC sales in late 07 and early 08 as users will be unable to customize corporate PCs and will need to buy computers for home and personal applications.

6. On the healthcare front, significant growth in new and novel healthcare delivery service companies will be limited as investors and entrepreneurs take a conservative stance while waiting to see what the recent and upcoming elections might portend for reimbursement.

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Jason Caplain is a General Partner with Southern Capitol Ventures. Founded in 2000, SCV is a Raleigh, NC-based venture capital fund focused on providing capital to early stage technology companies in the Southeast and Mid-Atlantic. Previous investments have included Art.com, Batanga, ChannelAdvisor, eMinor, Motricity and Synthematix (acquired by Symyx). SCV is currently making investments ranging from $100k to $1m.

For more information, visit www.southerncapitolventures.com.

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