Seems a paucity of IPOs and lackluster returns on investment have caused VC money to dry up. This does not bode well for an industry in what NVCA President Mark Heesen likes to refer to as a “Darwinian contraction”; “You are going to see a reduction in the number of firms, but more important you will see a reduction in the number of venture capital professionals,” Heesen told Reuters.

What is it that Sequoia Capital partner Michael Moritz often says? “The best time to invest is when people are cowering under their desks.” Hmm. Something like that…

“The interesting thing about cloud computing is that we’ve redefined cloud computing to include everything that we already do,” Ellison said. “I can’t think of anything that isn’t cloud computing with all of these announcements….These people who are writing this crap are out there. They are insane. I mean it is the stupidest. Is it ‘Oh, I am going to access data on a server on the Internet.’ That is cloud computing?…Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane. When is this idiocy going to stop?”

In conversation with former Sun (JAVA) CEO Ed Zander at a Churchill Club event a little over a year later, Ellison expanded on those remarks, suggesting that if the cloud is anything, it’s a cloud of BS.

Cloud’s water vapor….Cloud computing is not only the future of computing, it is the present and the entire past of computing.

…Salesforce.com has been around for a decade. And so has NetSuite…and people are saying, “Well, that’s cloud computing.” Google is cloud computing. Everyone is cloud computing….Everything is in the cloud now….It’s this nonsense.

…But it’s not water vapor. All it is is a computer attached to a network. What are you talking about? I mean, what do you think Google runs on?…Water vapor? It’s databases and operating systems and memory and microprocessors and the Internet!

…And the VCs, I love the VCs. [They ask their start-ups] “Oh…is that cloud?” [And the start-ups go] “Oh! Oh! Microsoft Word! Change ‘Internet’ to ‘cloud’! Mass change. Give it back to these nitwits on Sand Hill Road.”

…What do you mean by “cloud computing”?…All the cloud is is computers on a network.

Our industry is so bizarre. They just change a term and they think they’ve invented technology….You can’t just come up with a [slogan] like “Let’s call that ‘cloud.” [But] it sure beats innovation.”

Below, the full video. Ellison’s rant begins around the 45:54 mark.

The suit, over Joltid-owned peer-to-peer technology used in Skype’s software, seeks an injunction against Skype as well as damages that Joltid claims “are amassing at a rate of more than $75 million daily.”

A nasty surprise for Skype’s new owners: Silver Lake, the Silicon Valley-based private equity group; Index Ventures, the London-based venture capital firm; Internet entrepreneur Marc Andreessen’s new Andreessen Horowitz fund; and the Canada Pension Plan Investment Board. Though, really they should have seen this coming. After all, Skype and Joltid have been sparring since earlier this year.

From an eBay Securities and Exchange Commission filing earlier this year:

As previously disclosed, Skype has been in a dispute with the licensor of certain key technologies and had terminated a “standstill” agreement that had been entered into between the parties, permitting either to take action against the other with effect from March 2009. On March 12, 2009, Skype Technologies S.A. filed a claim in the English High Court of Justice (No. HC09C00756) against Joltid Limited, a BVI company.

In connection with the license agreement between the two companies, Skype licenses peer-to-peer communication technology from Joltid, and Joltid has claimed that Skype has breached the terms of the license agreement. Following the filing of the claim, Joltid purported to terminate the license agreement. In particular, Joltid has alleged that Skype should not possess, use or modify certain software code (the “Code”) and that, by doing so, and by disclosing the Code in certain U.S. patent cases, pursuant to orders from U.S. courts, it has breached the license agreement.

On the basis of, among other things, the parties’ mutual dealings since the execution of the licence agreement, Skype is asking the English High Court for declaratory relief, including findings that:

(i) Skype is lawfully accessing, in possession of, using and modifying the Code so that Skype is not in breach of the license agreement with Joltid and accordingly Joltid’s notice of breach and subsequent notice of termination are invalid;

(ii) Skype lawfully disclosed the Code in the U.S. patent cases so that Skype is not in breach of the license agreement with Joltid and accordingly Joltid’s notice of breach and subsequent notice of termination are invalid; and

(iii) Joltid has certain indemnity obligations in relation to the U.S. patent proceedings.

Although Skype is confident of its legal position, as with any litigation there is the possibility of an adverse result if the matter is not resolved through negotiation. In such event, Skype would be adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible.

Perhaps this is why we saw so few bidders for Skype?

That’s not great, but it’s a marked improvement from the 2.77 the Index registered in the fourth quarter–its lowest point in five years. Why the sudden change? “While concern over the state of the national and global economy and financial system remains, a sense of foreboding appears to be giving way to an expectation of eventual, if slow, recovery in the high-growth venture environment,” Mark Cannice, the author of the survey explains. “This mustard seed of hope appears to be taking sprout among a majority of the venture capitalist respondents who provided their insight to the March 2009 survey. And it is nurtured by venture capitalists’ faith in the resilience of entrepreneurs to build efficient enterprises with disruptive solutions, more modest expectations for growth and valuations, and the early stages of a stabilization in the financial system.”

In short, no reason at all. The economy is still deteriorating, perhaps less quickly than it has been, but deteriorating nonetheless. And venture investment is still declining. But there’s a sense that things are going to get better. And they surely will. Certainly, it’s not too difficult to do better than no IPOs two quarters running. And, as Sandy Miller of Institutional Venture Partners reasons, an economic environment like the one we’re in often gives rise to disruptive new technologies. “While the environment seems gloomy with no end in sight we need to remember that some of the best companies have been founded and built during bleak times,” he said. True entrepreneurs will continue to find ways of moving their ideas forward. From a venture investor standpoint 2009 and 2010 should be an attractive environment for new investments though there will be little liquidity for existing investments.”

As Sequoia Capital partner Michael Moritz often notes, the best time to invest is often “when people are cowering under their desks.”

[Image Credit: VC Wear]

Welcome once more to Weekend Update! I’ll be filling in today for your regular host, Beth Callaghan, who’s on vacation.

And what sane person wouldn’t be, after the slew of Silicon Valley silliness inspired by April Fools Day this past week? Digital pranks were the name of the game as Google (GOOG) and others heaped so many tepid hoaxes upon us that we wanted to call April Fold so as to quickly end this round of gags.

But no bag of tricks was needed for one Web site to April Fool itself into crying wolf about an imminent Google (GOOG) acquisition of Twitter, when a real story around the corner was aboutGoogle turning Turbo Tax tweets into ads.

Meanwhile, one of the biggest jokesters of them all, The Onion, won one of the biggest awards in journalism, a Peabody, meaning that the best sense of humor goes to that panel of judges. And to Stephen Colbert, who was willing to entertain (for a while) Twitter spokesmodel Biz Stone’s biz-model-less thoughts in an interview on “The Colbert Report.” Also on BoomTown this week: Facebook’s former CFO Gideon Yu is out, as was a leaked memo from Mark Zuckerberg about Yu’s departure and the company’s situation.

A sense of humor is certainly an invaluable feather to have in your cap these days. Digital Daily wrote about the most recent doom-and-gloom predictions and events to happen in this econalypse, like analysts’ predictions of YouTube losing $470 million in 2009, the barren IPO-less wasteland VCs are bemoaning and a major global slump in semiconductor sales. Other headlines weren’t quite so dreary: Google’s foray into VC land, the folks at BlackBerry HQ celebrating surprisingly good fourth-quarter results and the world’s worst-kept secret, the anticipated merger between IBM (IBM) and Sun (JAVA).

There was a similar mix of dark clouds and silver linings over at MediaMemo. The National Collegiate Athletics Association forced Twitter and partners AT&T (T) and Federated Media to take down one of its first ad campaigns, “March Tweetness,” crying copyright foul. Also running afoul with big companies in legal waters, free music Web site Seeqpod filed for bankruptcy. And video site Veoh laid off a significant amount of staff and kicked out its old CEO, replacing him with founder Dmitry Shapiro and refocusing the company on its “Video Compass” browser plug-in.

Online video is generally a turbulent space these, but the waiting is the hardest part for Hulu when it comes to the rumored Disney deal in which Disney (DIS) seems to be playing the field. Other gems of the week were URL-shrinking Web service bit.ly’s raising of $2 million and media mogul Rupert Murdoch’s Kindle envy.

In a new Mossblog, Walt Mossberg gives us his first impressions of the BlackBerry App World store in which Research in Motion (RIMM) takes a bold step into what was formerly the sole domain of Apple (AAPL). In Personal Technology, Walt reviews a network hard drive from Western Digital (WDC) that makes the technology gloriously simple for everyone. And in Mossberg Solution, Katherine Boehret takes a look at several laptop trays, designed to protect the–ahem–family jewels and family members in general from laptops’ scorching undersides.

Finally, our exciting Woz-watch, after many weeks, has come to a sad end: Steve Wozniak was voted off “Dancing with the Stars” this week after one misstep too many. Down, but not out, the Apple co-founder swore that the “geeks shall inherit the earth”… just not the dance floor, any time soon. Please.

More next week.

Until then, the market will have to make due with merger-and-acquisition deals, which themselves aren’t doing so well. There were just 68 M&As in the first quarter of 2009, the lowest number since 1999. And they generated just $3.2 billion–down 65 percent from a year ago. Seems acquiring companies are on the lookout for bargain-basement deals and there are unquestionably few to be had given the souring economy. “Acquiring companies are simply looking to be very aggressive buyers and frankly are looking for rock-bottom pricing because that’s what they should be doing in this kind of environment,” Jim Watson, managing general partner at CMEA Capital, told VentureWire. “If you’re a seller now it’s because you have to be a seller.”

“We’ll be focusing on early stage investments across a diverse range of industries, including consumer Internet, software, clean-tech, bio-tech, health care and, no doubt, other areas we haven’t thought of yet,” Managing Partners Rich Miner and Bill Maris explained in a blog post. “Central to our effort will be our fellow Googlers, whom we view as a critically important resource to help educate us about potential investments areas and evaluate specific companies.”

Presumably, then, the scope of the fund’s investments will be as diverse and, ahem, fascinating as the whims of Google’s leadership. Which isn’t always a good thing. That said, Google Ventures may do much to help the company innovate itself out of this downturn and perhaps even spot and engulf the next Google (GOOG) killer before it has a chance to live up to its namesake. As Google Ventures explains in its FAQ, it’s not above engulfing a company it’s incubated. “Acquisitions by Google of portfolio companies are possible, but this is not the goal or focus of our investment activities. Our focus is building great companies and generating long term financial return.”

Obviously. But for Google, right?

[Image Credit: Ignorance Is Futile!]

It loses a bit of its luster, though, when that healthy optimism and patient money are themselves cowering under the desk. And make no mistake, they are cowering under the desk. VC confidence at its lowest point in the five years after its sixth consecutive quarterly decline, according to the Silicon Valley Venture Capitalist Confidence Index. Sequoia recently called an emergency meeting of its portfolio companies to warn them of what one partner said could be at least a 15-year downward cycle (seriously?). Michael Moritz is out telling the Financial Times that “many of start-ups that emerged in the recent start-up boom will end up ’spattered on windshields and radiator grills and be forgotten.’” Just one venture-backed company, Rackspace Hosting, has gone public in the past nine months. And now the National Venture Capital Association’s annual survey forecasts a 10 percent decline in venture investment for 2009. Of the 400 venture capitalists surveyed by the NVCA…

• 92 percent said they expect a slowdown in investing in 2009
• 62 percent said they expect investment will decline more than 10 percent and fall below $27 billion in 2009
• 60 percent said they expect a decline in seed investment and 64 percent said they expect a decline in early stage investments
• 96 percent of venture capitalist said VC firms will not be able to raise money for investment in 2009

“2009 will be a year of anticipation for the venture capital industry as the economic turmoil will engender a fair amount of Darwinian change,” NVCA President Mark Heesen said in a statement. “The recession and shuttered IPO market will place tremendous pressure on portfolio companies to tighten their belts and re-tool where necessary. We will likely see a marked slowdown of new investments as venture capitalists turn their attention to supporting these existing companies.”

“This is forming to be a perfect storm for the venture capital industry that may result in a significant contraction of firms and capital,” explained Steve Carnevale of Point Cyprus Ventures, who believes institutional investors will eventually put less money into venture capital. “This storm has two fronts. The U.S. economy and the long investment cycle associated with life sciences and clean tech. First, the economy as a whole. The U.S. is bankrupt as a country as a result of massive borrowing that has grown over 30 years. This borrowing created an inflated investment portfolio that made available capital to tertiary alternative investments like venture capital. We are at the beginning of a massive de-leveraging that has unprecedented consequences for the economy and the venture capital industry. … The industry will contract not only because of overall economic weakness, but because the fundamental investment cycle will be dramatically longer. … Now the majority of venture capital is going into life sciences and increasingly clean tech. These types of investments will take longer to produce returns then in the traditional VC investments in the computer industry. When institutional investors figure that out, they will reduce their capital availability for this kind of alternative asset. … Therefore, the VC industry will get sandwiched between the economy and it own fundamentals.”

Ugly times for venture capital. That said, as Sequoia Capital partner Michael Moritz often notes, the best time to invest is often “when people are cowering under their desks.” ‘Course it was Sequoia that just held that “RIP: Good Times” meeting last week. …

[Image credit: Sad Guys on Trading Floors]

There is no good news right now, it seems. The bubble is burst.

“It’s pretty clear that demand is going to soften across the board for every company–it doesn’t matter if you’re selling to consumers or companies,” Sequoia Capital partner Michael Moritz told the Financial Times earlier this week. “[Many start-ups that emerged in the recent boom will end up] spattered on windshields and radiator grills and be forgotten.”

[Image Credit: Audiophile & Synergy Industries]

PREVIOUSLY:

• Google’s New Corporate Philosophy: “You Can Lose Money Without Doing Evil”
• Wall Street: Way Down in the Hole
• Analyst: The Great Dark Times Cometh!
• Wall Street: Give Me Something to Stop the Bleeding
• GOOG at $398? Clearly, You’re Dyslexic
• WaMu: Epic Bail
• Ballmer: Better Safe Than Lehman Bros.
• Lehman Brothers: $2.5 Billion for a Bankruptcy Well Done
• Here’s $39 Billion in Recognition for Your Hard Work on the Forthcoming Financial Crisis
• Weekend at Bernanke’s II
• Weekend at Bernankes

Sounds like another one of those poorly conceived “20-percent time” projects, doesn’t it? Historically, corporate venture capital portfolios have a very mixed record. There are the adepts of the discipline–Intel Capital (INTC) and Johnson & Johnson Development Corp. (JNJ), for example–that have done well for their parent companies. And then there are the maladroits like Dell Ventures (DELL) and Applied Materials Ventures (AMAT) whose crowning achievement was their ignominious retreat from corporate VC in 2005. A risky and often thankless proposition, running a corporate VC shop. “… Venture investing is not the best use of a corporation’s capital,” says venture capitalist Fred Wilson. “It is inevitable that it will produce sub-par returns at best and significant losses at worst.”

So why bother? Well, if you’re a company that takes the long-term view, as Google (GOOG) does, you’re likely more concerned with long-term strategic goals than short-term financial ones. So why not take some of the vast wealth you’ve accumulated in pursuit of those long-term gains, invest it in some start-up’s new ideas and innovations and incubate them–short term? The start-up company might be the next you, right? And if it is, you acquire it (presumably, your VC investment deals include first-acquisition rights). And you do so at a price lower than the one it would fetch after taking funding from traditional VCs. Then you bring the Google hive-mind and infrastructure to bear on the start-up’s innovations and bring them to market or use them to enhance your own product and services.

If the start-up turns out not to be the next you, you don’t follow up on your initial investment–saving yourself the grief of a dud acquisition.

Essentially, you transform the emerging technology market into one vast Google Labs from which you have pick of the litter. How’s that for a 20-percent time idea?

[Image Credit: VC Wear]

Now that venture capitalists are so taken with green tech, perhaps they can push some VC dollars toward the development of a greener data center. Because according to consultancy McKinsey, data centers are fast becoming the Superfund sites of the tech industry. McKinsey found that data centers are responsible for 0.3% of the world’s carbon-dioxide emissions. That’s about half of what the airline industry generates–and by 2020 it will surpass it.

“The more you look, the more you find that the entirety of the IT stack, from the CPU up, is very inefficient,” said William Forrest, the associate principal for IT at McKinsey. “Data centers are becoming a major business issue. We think it’s going to become a regulatory concern that will drive scrutiny not just in (corporate) boardrooms but with regulators as well.”

So what’s to be done? McKinsey proposes that corporations at least double the efficiency of their data centers by 2012 and adopt its Corporate Average Data Efficiency metric, a sort of fuel efficiency standard for IT. Said Forrest, “It’s miles per gallon for data centers.“