The local interactive space, with a highly fragmented audience, is not high up on the list of investments for venture capitalists without severe scrutiny.
Venture capitalists are not rushing headlong into the interactive local media scene, as inherent fragmentation issues, plus a slowly recovering economy, are forcing a hard look at where money is being placed.
Areas where there are no clear-cut leaders in local media have the highest success of being a good investment, venture capitalists speaking at the BIA/Kelsey’s ILM: 09 Conference in Los Angeles said Wednesday.
“It’s not for the faint of heart on the venture capitalist side to spelunk in the local space,” said Michael Yang, venture partner with Comcast Interactive Capital.
Warren Lee, venture partner with Canaan Partners, estimated that venture capital funding will contract by 30 to 40 percent by next year. The local space, with a highly fragmented audience, is not high up on the list of investments to hop right into without severe scrutiny.
Of the arenas where possible venture capital money could start flowing, local online shopping, classifieds and video were mentioned by the panelists.
Patricia Nakache, general partner with Trinity Ventures, said there is a definite lack of “fun” in the world of local online shopping, as opposed to brick-and-mortar businesses. Online impulse purchasing is also a lacking revenue stream, as a majority of online sales involve a good amount of research before purchase, she said.
Groupon, an online service that offers daily deals from local businesses that only occur once a certain minimum number are sold, is one site that is carving territory in this field, Nakache said.
She also said that while Craigslist leads the online world in total audience for classifieds, the space is lacking a specific matching component based on location and occupation that other sites could monetize.
Yang cautioned against areas like local search, since powerhouses like Google already have established supremacy. A start-up is going to have a tough time unseating the top dogs.
Online video isn’t as dominated, he said. There are large players in the field, but no clear-cut dominator, allowing a venture capitalist to consider pushing an existing player to the top of the heap or going with a new option.
Some areas are incredibly cluttered right now, Lee said, which is scaring off some investors. But, he said, economic pressures are going to clear out some of weaker players in the local online space. There are still a lot of start-ups in existence that will be weeded out over the next year, he said, and could open the door for certain companies to make their big plays.