Yesterday, I attended the Kelsey Group's Interactive Local Media/SES Local conference. Based on the turnout, there are many companies trying to get a piece of the online local marketplace, which is still in the early phases. But the Internet giants like Google Inc. (Nasdaq: GOOG), Microsoft Corporation (Nasdaq: MSFT) and Yahoo! Inc. (Nasdaq: YHOO) are gunning for dominance.

So, what are venture capital investors looking for?

Well, there was a great forum on the topic. The panelists included: Nick Veronis, managing director at Veronis Suhler Stevenson; Kara Nortman, vice president of M&A at IAC; and Mark Gorenberg, a partner at the VC firm Hummer Winblad Venture Partners.

"For entrepreneurs looking at local," said Veronis, "this is great timing. The market is hot and the valuations are robust."

He is bullish on so-called mobile phone coupons. "We are seeing much higher conversions with mobile coupons," said Veronis. "It's also convenient. So, coupons may skip the desktop."

But, according to Nortman, this doesn't mean that traditional valuation metrics no longer apply. "When we look at acquisitions of online properties," she said, "we look at cash flows. The cash flows may come in year 2 or 3 – but there needs to be a case that online users can be translated into cash."

Interestingly enough, this week IAC announced that it has invested in a Web 2.0 social networking site, MerchantCircle. "We like that the company has a viral model and a strong user base of over 300,000 merchants."

Also, if you want to check out other recent early stage fundings, visit DealProfiles.com.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

On a rather slow news day and week for Yahoo! and in the backdrop of rumors about Google buying YouTube for $1.6 billion, and MySpace founder demanding a probe into MySpace sale to News Corp, Yahoo! Inc. (NASDAQ: YHOO) shares gained some ground today and finished the week on an upbeat note. Yahoo! shares closed at $25.47, up 29 cents or 1.15%.

The only thing of interest I found today was more information on local search trends. I have previously mentioned that Yahoo! and Google are neck in neck in local search market share.

Today I found some information about overall social local trend and Yahoo!'s specifically. According to this data, the growth of local search that is confined to directories has been relatively flat over the last year. However, social local search, that is, looking for user generated local content such as Yahoo! Local, has grown much more significantly.

Today, AutoTrader.com announced its new vertical search feature – called "Find Your Dealer." An analyst from the Kelsey Group, Matt Booth, has an interesting take on this.

No doubt, the online/offline classifieds business is massive – with about $5.2 billion in revenues for 2005. Well, companies like Google and Yahoo! want a piece of the action.  According to Kelsey, auto dealers are upping their ad spend for online – from 6.7% to 8% during the past year.

Yet, success in local search is quite different than national search.  National search can be done with sophisticated automation techniques.

However, with local search, there really needs to be a sales force that meets with local businesses.

I had a chance to talk to Booth, who said:  "For a vertical like automotive, having a deployed sales force is an enormous advantage.  Dealerships are a handshake business."

Thus, the local strategy for Google is likely to partner with companies like AutoTrader.com.  According to Booth:  "Google will build the Base product to collect this data from user submissions and partner for the rest. Then they'll run AdWords around the 3rd party content."

Actually, Google's move into autos – and other verticals – can pose a big threat to eBay.  After all, eBay derives a lot of revenue from autos.

You can see my full interview with Booth at my blog:

Booth interview

Booth's blog entry