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State of the Venture Capital Industry |
HenryTo
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 Posted: Sun Mar 01, 2009 1:37 pm Post subject: State of the Venture Capital Industry |
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Trends in the Silicon Valley VC Industry (which provides 40% of all VC financing in the US) as of 4Q 2008. Also contains some numbers for the entire US VC industry:
http://www.fenwick.com/publications/6.12.1.asp?vid=8&WT.mc_id=2008.Q4_BK_email
| Quote: | The amount invested by venture capitalists in the U.S. in 4Q08 was approximately $5.5 billion, a significant decline from the $7.6 billion invested in 3Q08 and the $7.9 billion invested in 4Q07. The total amount invested in all of 2008 was $28.8 billion, compared to $31.4 billion in 2007.
Fundraising by U.S. venture capitalists was $24.7 billion in 2008, which amount was the lowest amount raised in a year since 2004.
There were 65 acquisitions of venture-backed companies in the U.S. in 4Q08, for a total of $3.8 billion, a significant decline from 75 transactions totaling $4.8 billion in 3Q08 and 123 transactions totaling $16.4 billion in 4Q07. There were 325 acquisitions of venture-backed companies in the U.S. in all of 2008, totaling $23.5 billion, the lowest dollar amount for acquisitions since 2003, and the lowest number of deals since 1999. Additionally, the age of acquired companies increased for the seventh straight year, with the median time from initial equity funding to acquisition reaching 6.5 years in 2008. |
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State of the Venture Capital Industry Replies |
HenryTo
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rffrydr
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nodoodahs
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| Posted: Fri Apr 22, 2011 2:35 pm Post subject: |
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That's the beauty of IPOs. The builder of the business is saying "it's time to sell" and the whole world (who knows less about the business than its builder) is trying to buy ...
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HenryTo
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| Posted: Fri Apr 22, 2011 6:49 am Post subject: |
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Courtesy of PEHUBWire:
| Quote: | Concern Grows Over Founders Cashing Out Too Much, Too Early
By: Connie Loizos
Six months ago, economist Paul Kedrosky found himself in a curious situation. After being introduced to a new service, along with several other potential investors, the founder of the service announced that as part of any seed-stage deal, he expected immediate liquidity for up to 25 percent of his shares.
Kedrosky, a seed investor in the investor information service StockTwits among other companies, quickly passed. “It wasn’t just an alignment issue; it just shows terrible judgment,” he says. Still, the deal was done, and Kedrosky says he’s right now looking at three angel deals and that all have involved discussions about founder liquidity. “It’s been astonishing.”
The trend appears to be growing. Citing a company he wanted to fund “as far back as 18 months ago,” venture capitalist Mark Suster says that he also abandoned the idea “because its founders were taking too much off the table, too early.” The entrepreneurs had founded the company just three years prior and the startup was producing less than $20 million in revenue, yet the team asked for $20 million during a follow-on financing round, and they got it — just not from Suster.
“They were doing really well, but how can you tell me that $20 million isn’t going to change the lives of some twentysomethings?” says Suster of the founders, who are now selling the startup. “I definitely feel like so much money was a disincentive. It could have been a billion-dollar company.”
Providing liquidity to founding teams isn’t new, of course. Union Square Ventures is one of many firms that have long given their blessing to entrepreneurs once they’ve achieved “something meaningful,” says Union Square cofounder Fred Wilson. Ideally, “meaningful” means “more than [that they’ve just gotten] a product out into the market that lots of people are using but [also] built a business, a team, a revenue model – maybe even become profitable.”
Wilsonsays he isn’t receiving onerous demands by Union Square’s startups, or seeing them from the prospects with which he meets.
But others say that a frothy market is changing things across the board, and that the days of providing entrepreneurs with the kind of “modest but significant” liquidity that Wilson sanctions — enough to “change founders’ economic situation for the better – by letting them buy a house in the Bay Area, or an apartment here [in New York], or helping them raise a family,” he says – are fast receding.
The best-known liquidity cases, unsurprisingly, involve some of the hottest Web companies on the planet right now, including the daily deals services LivingSocial and Groupon. Half of LivingSocial’s newest $400 million round was used to purchase employee and early founder shares. Meanwhile, Groupon investors have twice returned money to founding investors and employees, including last April, when Digital Sky Technologies led a $135 million round and again in January, when Groupon raised a staggering $950 million from eight firms, including DST. Indeed, a filing showed that just $377 million went to the company and that the rest was used for shareholder liquidity.
Yet even startups far removed from the big leagues are making employee liquidity a competitive provision, according to one high-profile investor of a billion-plus-dollar fund, who asked not to be named.
“A few years ago, someone with a profitable company might say, ‘I want $500,000 or $750,000 so I don’t have to worry about my mortgage and can pay for my kids’ college education. Then it shifted to breakeven, where you’d get requests from entrepreneurs who’d kind of proved their business. Now they’re saying, ‘I want $5 million to $7 million in liquidity’ before a company is even proven and its model fully established,’” he says.
How big a problem is it? It’s hard to know. No numbers exist yet to suggest that early and more employee liquidity impacts a company’s performance negatively or positively. Years from now, it may still be impossible to identify liquidity as the driving factor in whether certain companies made it or flopped.
Still, investors do not think it’s an auspicious trend – even while they feel forced to play along.
“To some degree, entrepreneurs are in the cat bird seat right now and they’re able to drive up deals to terms that don’t make a lot of sense,” says the investor. “Liquidity is one of them.”
“It’s the equivalent to dot.com IPOs, where founders took out companies that weren’t producing anything meaningful to get liquid,” adds Suster.
“Mark Zuckerberg could take $500 million off the table and no one could care,” says Suster. “He’s proven he’s in it to build something big. But other founders should not be cashing out before they’ve created any value.”
And to those investors letting them do just that? “I have two words,” he says. “Caveat emptor.” |
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HenryTo
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| Posted: Mon Nov 22, 2010 3:26 pm Post subject: |
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3Q 2010 update of the state of the venture capital industry:
http://fenwick.com/publications/6.12.1.asp?vid=15&WT.mc_id=2010.Q3_VCS_BK_EMAIL
| Quote: | DowJones VentureSource ("VentureSource") reported that the amount invested by venture capitalists in the U.S. in the third quarter of 2010 was approximately $5.5 billion in 662 deals, a decrease from the $7.7 billion invested in 740 deals in 2Q10. The PwC/NVCA MoneyTree™ report based on data from Thomson Reuters (the "MoneyTree™ Report") also reported a decrease in 3Q10 venture capital investment, with $4.8 billion invested in 780 deals, compared to $6.9 billion being invested in 962 deals in 2Q10. Despite the decrease in 3Q10, investments by venture capital funds in 2010 is on pace to modestly surpass the amount invested in 2009, although 2009 was the weakest year for venture investment since 2003.
VentureSource reported 102 acquisitions of venture-backed companies in the U.S. in 3Q10, for a total of $5.7 billion, an increase from the $4.8 billion paid in 85 acquisitions reported for 2Q10. Thomson Reuters and the National Venture Capital Association reported 104 acquisitions of venture-backed companies in the third quarter of 2010, compared to 97 currently being reported for 2Q10. Acquisitions of venture-backed companies in the first three quarters of 2010 have almost already surpassed total acquisitions in all of 2009. The largest acquisition in 3Q10 was Walt Disney's acquisition of Playdom for $563 million
There were 14 venture-backed IPOs in the third quarter of 2010 raising a total of $1.2 billion, compared to 17 in 2Q10 raising a total of $1.3 billion, according to Thomson Reuters and the National Venture Capital Association. Although IPOs declined in the third quarter, there have already been significantly more IPOs in the first three quarters of 2010 (40) than in all of 2009 (12). VentureSource reported nine venture-backed IPOs in 3Q10 raising a total of $723 million, compared to 15 IPOs raising $900 million in 2Q10. The largest IPO in 3Q10 was by Green Dot Corp. raising $164 million.
Fundraising by U.S. venture capital funds increased in the third quarter, with 45 firms raising $3 billion in the quarter, compared to 51 firms raising $2.1 billion in the second quarter of 2010, according to Thomson Reuters and the National Venture Capital Association. The largest fundraising in 3Q10 was $750 million by IVP. Both Thomson Reuters/NVCA and VentureSource report VC fundraising in 2010 to be behind the pace of 2009, which was the lowest year for fundraising in six years.
Since the first quarter of 2009, venture capitalists have invested significantly more in companies ($41.4 billion per VentureSource, $34.9 billion per the MoneyTree) than new capital that has been committed to venture funds ($22.7 billion per VentureSource, $25.4 billion per Thomson Reuters/NVCA), which is not sustainable over a prolonged period. |
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nodoodahs
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| Posted: Sun Feb 28, 2010 8:05 am Post subject: |
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Interesting paper on PE. Since VC is a subset, it's applicable here.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1557360
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nodoodahs
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| Posted: Wed Feb 24, 2010 3:22 pm Post subject: |
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The “traffic/public transport” analogy is very similar to the one I use when someone pulls a “the world can’t support this many people!” diatribe, i.e., say to them “you could do YOUR part in alleviating that ... “
Hmm, VC makes no money the last decade ...
Considering that VC is basically just an equity investment + an illiquidity premium, it’s no wonder that VC makes no money in a decade in which the major equity indices didn’t make money and during which there were several events that put a premium on liquidity.
So you could say that the proper amount of investment in VC funds is a function of the underlying equity return. If equities overall had been booming, VC returns would have been just fine, with plenty of IPOs, I think, even with the same amount of investment over the last 10 years.
To me (as an outsider), the biggest problem with VC in the last decade isn’t the money in it, or even the underlying conditions that make VC less profitable, but the concentration on the consumer-focused internet applications and tech. Nobody wants to build a better restaurant chain. It’s not tech or ‘net. Likewise, I hear about a lot of “cloud” BS but little of it B2B, it’s all consumer.
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HenryTo
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| Posted: Wed Feb 24, 2010 2:28 pm Post subject: |
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One more look at why venture capital is in trouble and how that affects the rest of us:
http://www.technologyreview.com/business/24565/
| Quote: | Around the same time Juniper went public, Silicon Valley venture capitalists were putting money into a new networking startup, Procket Networks. This time, the initial investments were bigger, and over successive rounds of financing, Procket collected almost $300 million in venture money. Three years after it started, though, the company had still not launched a product, and in 2004 its assets were acquired by Cisco in a fire-sale deal. This time the VCs walked away with just a fraction of their original investments.
The difference between those two stories is, of course, the difference between the world of the late-1990s technology-stock bubble and the world after that bubble burst. But of late, it also seems like the difference between the historical image of venture capital and the harsh reality of the current business. A decade ago, venture capitalists seemed like genuine alchemists, able to turn even startup dross into purest gold. In recent years, however, the industry has seemed less magical than mundane. Since 2004, its average five-year return has oscillated around zero. High-priced IPOs have become rare events, even as VCs have continued to pour tens of billions of dollars into new companies every year. As Fred Wilson, a principal at Union Square Ventures, bluntly puts it, "Venture capital funds, as a whole, basically made no money the entire decade."
.....
But it won't be enough for VCs simply to change what they invest in and where they invest. The real problem is not complex: there's too much venture capital, and there are too many venture capitalists, for the industry to be really profitable. The industry as a whole now has about $200 billion under management, more than twice what it did in 1998, and venture funds invested $20 billion to $30 billion a year for most of the past decade. And on the level of individual funds, huge amounts of capital combined with falling startup costs have, in Anderson's words, made funds "musclebound": a $500 million fund can't make too many small investments, even if that's what would make economic sense, because the partners don't have the time to supervise hundreds of companies. (This is one reason, along with the desire to limit risk, that many VCs have started to wait until later rounds to invest.) In the absence of another bubble, there's no way for new companies to generate profits big enough to provide a reasonable return on $20 billion to $30 billion a year. Kedrosky, for one, argues that for the industry to consistently generate competitive returns, annual investment and money under management need to fall by more than half. And while Wilson describes himself as "very optimistic" about the coming decade, he says that the industry "needs to return to the size and shape it was in the late '80s and early '90s."
The interesting thing is that this diagnosis is not especially controversial. Most people in the industry think there's too much money. It's like traffic, though: everyone thinks there's too much of that, but no one wants to take public transportation. And while in most businesses competition takes care of the problem by forcing the losers out, here winnowing takes much longer, because venture capital isn't like the stock market: if you get disillusioned, you can't just pull your money out of it. The limited partners who invest in venture capital funds make long-term, binding commitments to meet the "capital calls" of the general partners who manage the funds and make investments. This is, from the perspective of innovation, venture capital's great strength: instead of needing a quick return, it can afford to build companies. Nonetheless, it creates what Wilson calls "a huge amount of latency in the system." So even though the industry has been moving toward a more sensible balance between money under management and potential returns, it takes a long time to push underperformers out. |
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HenryTo
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HenryTo
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HenryTo
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| Posted: Wed Jul 08, 2009 8:35 am Post subject: |
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First quarter fund-raising blues for VC funds, courtesy of peHUB Wire:
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*** Venture capital funds raised just $5.1 billion in the first half of 2009, according to data released this morning by Dow Jones. This represents a 63% drop from the same period last year, and is the slowest first half since 2003.
The decrease was felt across sub-asset class. Early-stage firms raised $2.7 billion for 36 funds, compared to the $5.2 billion raised by 43 funds in the first half of 2008. Late-stage firms were off more than 53%, while multi-stage funds were down more than 68 percent.
Expect these numbers to be largely mirrored in an upcoming report from the National Venture Capital Association and Thomson Reuters. Preliminary data indicates that the overall first-half total will be a bit higher, but the year-over-year change is virtually identical. As of last check in the VentureXpert database, U.S.-based VC funds raised just over $2 billion in Q2 2009. That’s more than a 50% drop from Q1 2009, and a 79% drop from Q2 2008. |
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HenryTo
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| Posted: Tue May 26, 2009 7:58 pm Post subject: |
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What VCs are currently investing in:
http://www.technologyreview.com/business/22697/page1/
| Quote: | "SolarWinds is evidence that software-as-a-service works," says Sunil Dhaliwal, a general partner at Battery Ventures. Instead of selling physical software, the company's products are distributed and maintained via the Internet. Some observers have questioned whether this approach to selling software is economically viable, especially when faced with competition from more established companies. The answer, Dhaliwal says, is "yes across the board."
Enthusiasm for Web startups has, however, clearly changed since the height of the Web 2.0 boom. This is due partly to tighter economic constraints, but also to plummeting costs of starting Web businesses as cloud-computing infrastructure has spread. Since less capital is required to start a company, there is less need to turn to outside investors.
"I think most [Web] startup companies should not take venture-capital money," said Jeff Fagnan, a partner at Atlas Venture, during a panel discussion. He cited, in particular, companies building lightweight Web applications or software for portable devices like the iPhone. In some cases, Fagnan said, venture capital may damage a startup by creating conditions that push the company to aim too high from the outset. |
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HenryTo
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HenryTo
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