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…

Quite a coup for HP. Andreesen–who co-authored Mosaic, the browser that popularized the World Wide Web–is an icon in Silicon Valley and his expertise is highly sought. In addition to helming his new venture capital firm, Andreessen-Horowitz, Andreesen also serves as chairman of social networking outfit Ning and sits on the boards of eBay (EBAY) and Facebook. HP (HPQ) is lucky to get him, if only because it seems unfathomable that he’d have the time or bandwidth for anything else.

“Marc Andreessen is a software pioneer whose leadership has helped shape the Internet,” an ebullient HP CEO Mark Hurd said in a statement. “Marc’s entrepreneurial background and industry expertise will be a welcome addition to the HP board of directors.”

“I think the whole category is still a hobby right now. I don’t think anybody has succeeded at it. And actually the experimentation has slowed down. A lot of the early companies that were trying things have faded away. So I would have to say that given the economic conditions, given the venture capital outlooks and stuff, I continue to believe it will be a hobby in 2009.”

– Apple CEO Steve Jobs, October 2008

“We still consider this a hobby. It is clear that the movie rental business has really helped Apple TV and there are more and more customers that want to try it. And we’re going to continue to invest in it, because we fundamentally believe there is something there for us in the future.”

– Apple COO Tim Cook, January 2009

There’s not much of a business yet in Apple TV, as Apple’s leadership often notes. But there may be soon, with the market for connected TVs evolving as it has been.

In a research note issued this morning, Piper Jaffray analyst Gene Munster says the time is right for Apple to release the next iteration of Apple TV–one that offers DVR capabilities and supports iTunes TV show subscriptions.

“Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 or $40 per month),” Munster writes. “Such a product would effectively replace a consumer’s monthly cable bill (~$85/month) and offer access to current and older episodes of select shows on select channels.”

Further, Munster notes, “The selection would dictate the value, and several tiers could be offered, but we see this as one way for Apple to leverage its large iTunes content library as well as its unique Apple TV hardware in order to get digital video to the TV for a price significantly less than the average cable or satellite TV bill.”

Makes great sense. And if Apple (AAPL) were to launch these services in concert with App Store support, as Munster has suggested in the past, it would be a pretty compelling proposition. And it would set the stage for the next evolution of the platform, the Apple Television, an Internet-connected TV with onboard DVR and media center functionality.

Says Munster:

“Beyond new hardware with DVR or iTunes video subscription features, we believe the 2-5 year roadmap for the Apple TV product lineup is robust. To begin with, Internet-connected TVs with interactive features will likely gain popularity in the next several years. Apple could differentiate itself in this market as a seasoned software developer competing largely with television hardware manufacturers that do not excel in the software arena. The device could also bring iPhone games, a relatively new segment for Apple, to the television.

“While this is unlikely in the near term,” Munster continues, “we believe the iPhone will succeed as a portable gaming platform and Apple may consider bringing higher quality games developed on a similar platform to the TV. The iPhone app developer community is already robust, and Apple could leverage those developers to enter the gaming arena on the TV. In fact, the iPhone or iPod touch could itself operate as a touchscreen gaming control for a game-centric Apple TV.”

Again, this makes great sense, though TV hardware is not an easy business–just ask Sony (SNE). But, as Munster aptly notes, it might be quite a bit less difficult if Apple were to “change the rules of the game,” something it’s done in a number of markets already.

That said, as Media Memo’s Peter Kafka just reminded me, the cable companies are working very closely with Hollywood to make sure it’s difficult for people to replace their cable service. They’d almost certainly attempt to sack an initiative like one Munster describes above.

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.”

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

At last estimate there were some 200 ad networks in the online display advertising space. Today, there are 199. Jellycloud, the “highly differentiated behavioral ad network,” has finally undergone the ultimate differentiation: It’s shut down. The company–which in past lives was known as Gator and Claria, two names synonymous with spyware–did indeed close last weekend, returning to investors the $11.5 million in venture capital it raised in April, sacking its 36 employees and calling in the asset liquidators.

Oddly, the Jellycloud Web site still sports a “We’re hiring!” message. Perhaps the company’s leadership is already hard at work on its next incarnation. …

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]

According to data released today by PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial, VC investment in New Mexico is up an astonishing 375% from a decade ago, the number of start-ups up 600 percent. Equally as impressive is Pittsburgh, where VC investment is up 513 percent and the number of start-ups is up 267 percent.

Whoa.

As Mark Heesen, president of the NVCA, notes, New Mexico and Pittsburgh are clearly becoming hotbeds of innovation. “For regions that don’t have a large, indigenous venture investor base, it is important to give outside VCs a reason to visit,” he said in a statement. “These unexpected regions are making venture capitalists stand up and take notice.”

They sure are. New Mexico had three start-ups a decade ago. Now it has 21. 21! With new companies springing up willy-nilly like that, how’s a VC not to stand up and take notice?