Venture Capitalist Shares Insights on How to Assess Internet Startups

Daniel Ciporin '86 was not tempted to jump into the dot-com boom that lured so many investors and executives during the 1990s until he came across a fledgling online shopping business called DealTime, run by two Israeli computer science students. “Nothing got my attention until this came along—the notion of a universal catalog for the world,” said Ciporin, a general partner at Canaan Partners, who spoke at Yale SOM on February 21. Ciporin shared his experiences as an internet entrepreneur and now a venture capitalist investing in online startups.

"Passion is really important," he said. "You need to fall in love with a company." The quality that set DealTime apart from other startups at the time, according to Ciporin, was that the company had the potential to make the internet more useful for consumers on a global scale. He served as chairman and CEO, eventually rebranding the company as; it became a pioneer in online comparison shopping. Over Ciporin’s nearly seven years with the company, revenues climbed from zero to more than $100 million. The company went public in 2004 and was acquired by eBay shortly afterwards in 2005.

When he evaluates tech startups today, Ciporin said, he looks for companies that disrupt an already existing market through internet-based innovation. "There are lots of industries out there that are ready to be disintermediated and disrupted," he said.

Startups with the potential for this type of disruption share certain qualities, Ciporin said. A venture should have the ability to make an existing market more streamlined and cost effective for consumers.

"Ideally it should cut out or transform entire pieces of the existing value chain," he said. "Marketplaces in particular are disruptive vehicles in a number of different industries. The ability to connect the producers of a product directly with their ultimate end users is inherently a disruptive feature for a variety of traditional industries, one that the internet now enables."

Ciporin cited two of his recent investments as examples of companies that are "disrupting through innovation." One is Lending Club, an online consumer credit platform that matches borrowers and investors, competing with banks and other lending institutions. "Lending Club has created an entirely new marketplace for consumer credit," Ciporin said. "This is a fundamentally different asset class, and those do not get invented very often." Ciporin has also invested in Borro, another disruptive financial services company. Borro, he said, is a high-end, secured asset lender for consumers, offering collateralized loans for upscale consumers ranging from $1,000 to $1 million; the company has lent against collateral including Rolex watches, Aston Martin cars, and a J.M.W. Turner painting.

Even the most promising startup is far from a sure thing, Ciporin emphasized. "It’s a very risky business,” he said of the startup sector. "Great companies get started every year, but only a few have real impact."

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Daniel Ciporin spoke with Yale Insights about how to value an internet startup.