By Dan Ginsberg, Maveron Sector Advisor, former CEO Red Bull

The seismic shift that has occurred throughout the business world has been felt as strongly in the leading edge of the fast moving consumer product categories as anywhere else – maybe stronger. After all, it is not difficult to understand that, when put under buying pressure, the consumer will stay as closely attached to their tried and true brands, those that they know deliver what they want, rather than taking a “risk” on a new product, even if the price point is “only” $2-4. This has presented problems for innovative brands right on through the value chain from creation through funding, distribution, retail merchandising and, ultimately, the consumer.

What is an Entrepreneur to Do? While there is no doubt that price plays an integral role at a time like this, it seems that price, like a better, greener package, is the ante alone, and not enough right now to move the consumer to a, so-called, riskier purchase. So, as happens in any cycle, we are now seeing brand after brand finding a new path and, in food and beverage, it is definitely functionality. Innovative entrepreneurs are adding a distinct health advantage to naturally nutritious products by supplementing with ingredients that add value in a therapeutic manner, and/or for consumer convenience.

Some beverages, for example, are providing the calcium and Vitamin D that women are being told they need as supplements in their diet. Because of this efficacious movement, the consumer can refresh themselves and satisfy this pharma-type need all in one purchase. Meal Replacement beverages, as well, are seeing good growth, even in these tough times. Those would be the belly-filling, nutritious, great tasting products that also feature the simple, but all important, mouth appeal of a classic beverage. They deliver the protein, or the multi-vitamin, or the carbs that consumers are looking for in an incredibly convenient package that doesn’t require a fork and a knife, or even a hard stop in a time-starved day. It’s so portable; they can even drink their meal while driving.

This healthy-on-the-go movement sees no end right now and so, as I speak with the entrepreneurs who are looking for their next round, or even first round, of financing, I am careful not to discourage them about their own better mousetrap idea, while making certain that I firmly cement in their minds the growing opportunity to move beyond refreshment, alone, and articulate the power of this movement toward functionality. Certainly this is not the only way to success, but look around at all the new products and the numbers speak for themselves. Those emerging brands that feature functionality far outstrip those that don’t. In the case of those that don’t, they had better be healthier, reduced calorie or greener choices.

Just so that we are clear on this not being a beverage-only conversation, the same applies to snack foods. While it is a tough road to hoe for traditional empty-calorie snacks, the nutraceutical approach to snack foods that promise the same healthy value-add as their beverage brethren is working. What began as health bars has leaped into chips, sticks, dips etc. etc. Why not get my daily dose of X while still getting the satisfying crunch I’ve always gotten from my previously-favorite bag of chips. But for a few pennies more out-of-pocket, it’s a no-brainer for many consumers and, especially, for the Mom gatekeeper, who is more studiously than ever, moving quickly down the aisle looking for better alternatives for her family, and herself.

By Jason Stoffer

I graduated from Wharton in 2005, and rather than joining my fellow graduates flocking to Wall Street, McKinsey and Google, I joined Career Education Corporation (Nasdaq: CECO). This little known company delivered operating results most VCs would salivate over. CECO’s Online Education division, which  offered online post-secondary degrees, scaled from startup to $600 million in sales and 30%+ operating margins in less than five years. My decision to join CECO reflected my optimism in the opportunity for new for-profit players across the $1.2 trillion U.S. education market. Since I first interned at Career Education in 2004 the for-profit education market environment has only gotten stronger – market leader University of Phoenix has increased revenues from $1.8 billion in 2004 to $3.7 billion annually today. For-profit companies have grown faster than the overall market as they have proven to be more nimble, more responsive to consumer needs and less attached to legacy business models than incumbent players.

To give a sense as to the size and scope of for-profit education, I compare it to some other industries popular amongst investors in the chart below – note that for-profit education is 3.0x times bigger than Internet advertising.

Trends Driving the Education Markets

For over a hundred years, education changed very little in the U.S. Students received a new set of textbooks each year and class consisted of the proverbial “sage on stage” – a teacher standing on stage and lecturing to students. The advent of the Internet has changed the learning paradigm – and we believe the impact to date will be dwarfed by technology’s impact on educational delivery and pedagogy in the decade ahead. While most of the big wins to date have been in for-profit post-secondary education, we believe there will be multiple types of businesses in domestic and international and formal and informal education that offer potential for venture returns. The impact of changes in education can be distilled into four megatrends, as shown on the chart below. Over the coming months on this blog, we will shine a spotlight on each of these trends and highlight some of the promising young startups we are seeing emerge.

Auctionpay [http://www.auctionpay.com] was acquired by Global Payments Inc. (NYSE: GPN) [www.globalpayments.com], one of the world’s largest electronic payment processing services, on September 28th. The all-cash acquisition generated a positive return for Maveron and the company’s founders.  Maveron was thrilled to announce this well-deserved exit, and we look forward to seeing Auctionpay continue to grow its innovative, consumer-focused business model as a fully-owned subsidiary of Global Payments – a $4 billion company that processes billions of credit, debit, check, and ecommerce transactions annually for over one million merchant locations worldwide.  Auctionpay will maintain its corporate headquarters and all if its employees in Portland, Oregon – continuing to focus on helping nonprofits raise more money for their causes. As part of the larger company, Auctionpay will have the resources to accelerate development of new fundraising software products integrated with payment services, and will bring its products and services to a global audience via Global Payment’s worldwide reach.

Since it was founded in 2002, Auctionpay has grown by leaps and bounds – supported by two rounds of venture investment from Maveron and hands-on guidance from our team that helped the company quickly become a market leader in fundraising software. Auctionpay already provides products and services to improve the fundraising success [http://www.auctionpay.com/about-us/client-stories.aspx] to over 6,000 nonprofit organizations and schools, and they’ll surely be able to reach more worthy charities and non-profits worldwide now that they’re part of Global Payments. Bravo Auctionpay, and we wish you ongoing success!

By Christopher Michel, Maveron Sector Advisor

This morning, I noted that Auren Hoffman posted a link to Mark Suster’s great blog post, “Who Should You Hire in a Start-up?”  Essentially, Mark advocates for hiring people that want to “punch above their weight class.”  In other words, people that are still striving to grow in their careers.  I couldn’t agree more.  Giving people a shot at the big job often delivers fantastic results – for 3 main reasons.

First, it allows you to recruit rock-stars out of existing companies.  Let’s face it, many of the best people are already employed.  They know they are good – and are thinking about the next step in their career.  For a host of reasons, their existing employer might not be willing or capable of providing that next challenge.  You are.

So, for example, the director of marketing at XYZ.com is the one making it happen at the company.  XYZ already has a competent VP of marketing and is unlikely to promote their director, as there isn’t room in the org chart for her.  That’s where you come in….sorry XYZ!

Second, the person is likely to work extra hard to demonstrate that they can do the job.  Our new VP of marketing (from XYZ) knows that you’ve just bet big on her (with the board, the team, etc) – and that she left a great job to play in the majors (the management team).  Failure just isn’t an option.  Contrast that with the “industry veteran,” who has less to prove, isn’t willing to sacrifice life balance (forgive me for being so blunt), and might be more easily disappointed if the job doesn’t meet their generally high expectations (difficulty, comp, structure, etc).

Third, our “striver” is more likely to be good at both personal execution as well as delegation.  I’ve found this to be a critical characteristic of start-up success.  Often, senior “industry veterans” are less willing to roll up their sleeves and do actual work.  Often the kind of output required for entrepreneurial success requires the full involvement of the senior team.  As you well know, it is very difficult (if not impossible) to delegate innovation.  Our new VP of marketing, for example, knows the specifics of media buying (the people, the deal structure, terms, etc) and will often be able to leverage their (relevant & timely) experience to more effectively lead and calibrate an execution-driven team.  (I wrote more about this here: http://gigaom.com/2007/06/06/outcomes-vs-activity/)

I’m making a great number of generalizations in this post.  Experienced leaders have much to offer startups – and can provide game-changing DNA to companies.  That being said, I’ve consistently found that hiring people earlier in their careers and giving them big jobs is a winning strategy.  At both Affinity Labs and Military.com, we had a large number of team members right out of college.  We gave them big jobs, believed in them, and they delivered simply amazing results.

By Timothy Hay, WSJ Blog Post

Deal pace in the venture capital industry has cooled considerably. At the same time, demand for useful smartphone applications has heated up beyond the boiling point, as the billion-plus downloads logged by Apple Inc.’s App Store in less than a year can attest.

So it was probably just a matter of time before tech-savvy venture capitalists – whether for love, or for money – began developing their own phone apps, altering or even abandoning their traditional role of financial engine to eager entrepreneurs.

Ben Choi, for example, who this summer left Storm Ventures to take a position with Seattle-based venture firm Maveron, moonlights as an app developer and recently launched his first offering in Apple’s App Store.

“It’s so easy to do now, where it was almost impossible to do two years ago,” Choi said. “This is something I can do in my spare time, on my own Mac.”

While at Storm, Choi spearheaded investments in successful Web and mobile ad networks YieldBuild Inc., Adgregate Markets Inc. and AdInfuse Inc. He also worked with RRE Ventures, and with the CIA’s venture division, In-Q-Tel.

Choi’s first app, called Bean Cards, is a Chinese-language learning program geared toward toddlers.

“As I left Storm, this was a nice side project,” Choi said. He is bootstrapping a two-employee app company, Four Beans Inc., which he may present to Maveron or Storm if it blossoms into a good investment opportunity down the road, he said. He began building his app when he realized that babies and toddlers are fascinated by the iPhone, but that few apps have been created for them.

While the Bean Cards app might move to a premium-fee model, where users pay more for more features, it is currently staying afloat with the 99-cent download fee, which Choi said has been paid hundreds of times since its June launch.

“I’m not quitting my day job,” Choi said, but he added, “I think this will make me a better investor.”

From Investor To Entrepreneur

Another venture capitalist, Dan Gellert, is actually taking the plunge. As he prepares to launch a travel-related application for the iPhone, Gellert has indeed quit his day job as associate partner in Time Warner Inc.’s venture division.

“I worked hard to get to this point, and I’m excited to take the jump,” Gellert said. “There has been a part of me that’s been jealous, as I meet these guys building companies. I’ll miss some aspects [of investing] but I won’t have any qualms.”

His colleagues at Time Warner told him to expect some lean years ahead, Gellert said, as exit opportunities for start-ups had all but evaporated with the country’s financial problems.

“This was just the right time for me to go, for personal and professional reasons,” he said. “We discussed the exit markets, and the next couple of years were looking to be tough…This is what I really want to do. It’s more intellectually stimulating.”

In his three years with Time Warner, Gellert took part in eight investments in digital media, gaming and cable networking companies, he said.

But beginning in early September, Gellert is a full-time app developer. His location-based application, GateGuru, is meant to take advantage of the billions of hours – and dollars – that travelers spend in the nation’s 85 largest airports.

GateGuru uses a smartphone’s location-tracking technology to determine which airport, and even which gate, a user is visiting. It pushes information about nearby amenities to the user’s phone. Users of the app can also rate and review businesses, Gellert said.

“I’m going to start it lean, and bootstrap it myself,” he said.

Like Choi, Gellert has hired several software developers to help with his app. He plans to grow the company gradually, so that it does not outpace the app’s base of users.

When it launches at the end of September, a basic version of GateGuru with information on 20 airports will be available for the iPhone for a one-time, $1.99 fee, Gellert said. An expanded version – featuring the country’s top 85 airports – will also launch at that time, and can be had for $3.99.

The plan to monetize goes beyond download fees. As soon as the app attracts a large group of users, Gellert plans to offer coupons for some of the businesses located in airports.

Mobile couponing, a nascent idea but one that is anticipated by many to be a moneymaker, has become more feasible with the iPhone’s latest software update, which adds a secure payment mechanism for the device that is tailored for small transactions.

“If I look back 10 years from now, I’ll say this was the first scalable success for mobile coupons,” Gellert said.

More Opportunities For Aspiring Developers

The iPhone has something else going for it that has turned thousands of people, including venture capital professionals, into aspiring developers: an open, available software toolkit for building applications.

“The beautiful thing about the iPhone is the opportunity for small-time developers. Kudos to Apple for opening up the software,” said Ben Jabbawy, an associate at Nantucket-based GreatPoint Ventures, a seed-stage firm that often incubates young companies and puts its VCs in top management positions.

Jabbawy and GreatPoint founder Avi Goldberg have teamed up with other GreatPoint investors and software developers to launch Tiverias Apps Inc., a start-up app company that just released its first offering.

It took only a few weeks to go from concept to working app once a few developers were brought on board, Jabbawy and Goldberg said. The 99-cent app, called Gpush, remedies problems that the iPhone presents to users of Gmail. Released in late August, the app provides a shortcut to Gmail accounts. It was downloaded 25,000 times on the day it went live, the investors said.

Tiverias Apps will soon launch a business-utility app for the device, they said.

Following the firm’s usual investment strategy, GreatPoint will finance Tiverias Apps and seek to bring other investors aboard. In the past GreatPoint has co-invested in young companies with top-name firms like Khosla Ventures, Draper Fisher Jurvetson and Kleiner Perkins Caufield & Byers, the VCs said.

“In most cases, we started the companies, mitigated the market risk and brought in senior leadership,” Goldberg said.

A Boom Waiting To Happen

The state of the mobile technology industry today has been likened by many to the state of Internet technology in the mid-1990s: a fast-growing, wide-open field where the rules are still being written.

From a VC fund-raising perspective, there have been a few successes among app developers. One is games and networking app maker Tapulous Inc., which raised $2 million from Khosla Ventures and individual backers before going live last summer.

But while mobile-industry analysts like Jupiter Research have predicted that mobile apps will bring in a collective $25 billion annually by 2014, the flow of investment dollars and revenue to app developers has been slower than many expected.

One of the main reasons for this is that Apple’s App Store, which features tens of thousands of apps, is still developing ways to help consumers find the kinds of programs they want. The number of paid downloads will increase when users are offered appropriate apps without having to search very hard, investors said. Apple and other tech companies are working hard on the discovery issue, and improvements to the system are expected fairly soon, investors said.

Phone makers like Research in Motion Ltd. and Palm Inc. have also built app storefronts for smartphone programs – another development that has the potential of speeding up the flow of dollars into mobile tech start-ups.

Top funds like the $100 million Kleiner iFund and the $150 million BlackBerry Partners Fund could ramp up, and put the lion’s share of the funds – which has not happened so far – into app developers.

While the number of successful, independent app developers earning a good income can still be counted on one hand, this could change sooner, rather than later, investors said.

“If we’re still in the same place three years from now,” Maveron’s Choi said, “I’ll be floored.”