final vcj conference oct 2011
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The State of the Venture Capital Markets
Mark Suster
VCJ Venture Alpha Conference – October 2011
@msuster
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What is the State of the VC Market?
What Comes After Social Networking?
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Accenture (software dev)
BuildOnline (’99)
Koral (’05)
VP Product Mgmt, Salesforce.com
Largest VC firm in Southern California
Both Sides of The Table
This Week in VC
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The Set Up
What is Driving Change?
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It Is Dramatically Cheaper to Start a Company
Open source
Cloud
Developers Start
Companies
2000
$5m
$500k
2005
$50k
2009
$5k201
1
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Amazon & Ycombinator Have Fueled the Market
• 90% reduction in cost
• Faster time-to-market
• Great ability to experiment
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So Founders Much Younger, More Technical
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Huge Explosion in Tech Startup Creation
Seed Deals /
Incubation
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While The Total Number of VCs Has Right-Sized
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The Opportunities are Much Bigger
2001 2011
100
2,000 • Always On
• Higher Speed
• Payment Ready
• Socially Linked
Millions Online
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Conditions Actually Bode Really Well for VCs
Active VCs
Seed Deals
Revenue Potential+
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So What Exactly Is Changing in our
Industry?
Some Goods, Some Bads
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Mentorship-Led Investing Has Captured Enormous Talent Pool
Access to Deals
Access to Deals
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Great New Focused & Disciplined VCs Created
Super Early
Territory
Topic Area(i.e. big data)
Thrive
Early or Classic A
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Some Traditional VCs Now Doing Many Seed Deals
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
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This is Driven by FOMO (Fear of Missing Out)
High volume, small deals
No oversight
Purely an “option”
Not smart strategy for VC or founders
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In H1 2011 80% of LP Money Went to Just 7 Firms. The Billion Dollar Club.
7 Firms Total
$6.3
$8.1
VC Money Raised($ billion)
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Which Begs the Question of Whether It’s Venture Capital or Growth Equity
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
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Fund Size + FOMO Driving Separation from Price & Underlying Value
Time
$
Historic Value
Today’s Market
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People are Paying Growth Prices for Market Risk
Time
Val
uatio
n
Product RiskProduct Risk
Growth / Scale Risk
Growth / Scale Risk
Monetization / Competition RiskMonetization /
Competition RiskMarket RiskMarket Risk
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Probably Less Traditional VCs Being Funded Lately.
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
$25-75m
Typical Fund Size
$200-300m
$500m-$1bn
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Traditionally VCs Have Focused on Few Companies & Deep Commitments
1-2 deals per partner /
year
Many deals / year
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Ops SupportOps Support
Two great firms have reinvented model by focusing on the “group collective”
• Founder friendly
• High volume
• CEO Summits
• Founder Email Lists
• X-Company Equity Sharing
• Heavy focus on “second round capital”
WinningWinning Follow On $$Follow On $$
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Some of Best Returns Seem to Be Driven By “Right-Sized” Traditional
VCs
Public
Accessible
Though-Leaders
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Public Openness Helps With Every Major Stage of the VC Lifecycle
Access to Deals
Access to Deals WinningWinning Follow
On $$Follow On $$ ExitsExits
Top end of funnel much wider
Founders want to
work with you
VCs work with others they know,
like & respect
Awareness with
buyers for your
portfolio
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So What is the Next Big Investment Opportunity
on the Internet?
Television.
Yes, really.
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Americans watch 5.3 hours of TV / Day
TVReading
< 1 Hour
5.3 Hours
Media Patterns
Online
3 Hours
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You Tell Me What the
Future of the Internet Is?
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But VCs Hate Investing in Content – Hits Driven Business?
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It’s Not Just Dogs on Skateboards Anymore
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A Disruptive Breed of Digital Content Producer Has Emerged
UGC Network TVYouTube TV
Pro
du
cti
on
C
osts
/
Min
ute
$100-400
$6,000-8,000
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These 4 LA Companies Alone Doing > 3 Billion Video Views / Month
YouTube TV
Costs
/
Min
ute
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YouTube is the New Comcast … And Notice the Change in Branding
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With YouTube Content Distribution is Much More Predictable
ViewerViewer
Subscribers
Email Lists
Facebook Connect
YouTubeYouTubeProducerProducer
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Youth Demo Already 1/3rd of Time Online Watching Video
Streaming Video
Other Surfing
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And Revenue Becoming Substantive
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How Mainstream? 86% of All Internet Watch Online Video
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Aug 11
42 billion views
185 million viewers
228 videos / person
17 hours
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91% of Households Still Pay for TV (91%)
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This Market Disruption Will Be
Enormous – And It’s Arriving Now
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Thank you