final venture outlook 2016
TRANSCRIPT
Venture Capital Outlook 2016
1
Mark Suster & Kevin Zhang @msuster & @kevinyzhang
Some of our industry’s smartest thinkers have a different world view.
So who’s right?
2
One thing I’m certain of - we’re in a bubble
Trade in an asset at a price that
strongly deviates from
asset's intrinsic value
A surge in prices, more than warranted by fundamentals &
usually in a particular sector. Followed by a drastic drop in prices
as a selloff occurs
Widescreen Template - Aug. 2015
So will 2016 be the year
the craziness finally ends?
Who the fuck knows.
I’ve been calling the peak for 2
years
While many great companies are being created, I call BS on 50 new billion-dollar US companies in just 18 months
6
Number of startups valued at $1B+ in the US
0
25
50
75
100
Jan 2014 Jan 2015 Sep 2015
80
51
30
Source: WSJ and DowJones VentureSource
Late stage valuations (D round non-VC) are frothy, driven by demand from outsiders (vs. C round led by VCs). We see similar trends now happening in Seed & A rounds driven by crowdfunding.
7
Late stage private company median valuations ($M)
Public markets are more reasonable (iShares US Tech ETF, 7/1/12 to 6/30/15
40
80
120
160
200
2012 2013 2014 1H 2015
88100
136
184
5057
7083
Series C Series D+
Source: Pitchbook 2H 2015 VC Valuations & Trends Report, iShares US Tech ETF
CAGR
CAGR: 15%
18%
28%
And valuations for the ‘most funded’ club continue to grow while the rest of the market has started to show discipline.
8
Global unicorn valuation ($B)
0
1.5
3
4.5
Jan 2014 Jul 2014 Jan 2015 Jun 2015
4.13.8
3.12.8
1.91.61.7
1.5
MedianAverage
Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015
Median revenue multiples very high relative to history
9 Source: CBInsights, April 2015, based on press report estimates and SEC filings of private company valuations and sales
Median11x+
While public multiples reverting to historical mean (i.e. SaaS now at 4-6x)
10 Source: Scale Venture Partners SaaS Index - EV divided by most recent quarterly revenue multiplied by 4, Jul 8 2015
Public SaaS EV/revenue median multiples
Late-stage private eCommerce multiples more than double that of public comps
11Source: GCA Savvian Internet Commerce multiples, CBInsights, press report estimates and SEC filings of private eCommerce company valuations and sales These companies are real companies but we masked them to avoid the company-by-company debate.
Public eCommerce EV/CY revenue median multiples
0
1
2
3
4
Dec '13 Mar '14 Jun '14 Sep '14 Dec '14 Mar '15 Jun '15 Sep '15
2.3 2.2
3.12.8
2.1 2.1
2.72.4
Late-stage private eCommerce EV/CY revenue median multiples
0
2
4
6
8
10
12
14
0 5 10 15 20 25
Company 6 2.5
Company 5 12.9
Company 4 12.0
Company 3 4.4
Company 3 5.3
Company 2 6.8Company 1
5.7
Median: 5.6x
Dec ‘13 Jun ‘14 Dec ‘14 Jun ‘15 Dec ‘15
Median: 2.4x
Companies are increasingly exiting at or below last private valuation
12 Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015
Dec 2014 Jun 2015Jan 2014
3 <= last private valuation
5 <= last private valuation
12 total billion+ exits in 2014 7 total billion+ exits in 1H 2015
Are we smarter than the public
markets?
Meanwhile, at the other end of our market - crowdfunding exploded the last 2 years, growing at 153% CAGR
14
Global equity crowdfunding amount ($B)
0
1
2
3
2013 2014 2015E
2.6
1.1
0.4
Source: 2015CF - The Crowdfunding Industry Report by Massolution
15
Many syndicates have deal-level carry. This has
led some to become super promoters.
Some behavior in the less reputable
crowdfunding platforms bordering on criminal.
P.T. Barnum
16
Ambitious technologies Superior monetization
Despite hype, valuations and froth - amazing companies are being created. Perhaps more than we’ve ever seen
What is driving some of the craziness?
17
18
Everyone wants in on the
action
Non-VC investors doubled participation in mid & late stage investments, now in nearly 2/3rd of deals
19 Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Non-VC participation in mid & late stage startups
0%
15%
30%
45%
60%
2009 2010 2011 2012 2013 2014 Apr 2015
59%
48%46%39%37%33%31%
CAGR ’09-’14
9%
20
Corporates make up the largest source of Non-VC investors and are less valuation sensitive
CAGR ’09-’14
0%
13%
25%
38%
50%
2009 2010 2011 2012 2013 2014 2015
44%
35%35%
31%28%28%
25%27%
20%17%
11%13%
8%9%
Asset Mgmt Family Office Hedge Fund Mutual FundCorporate
Asst Mgmt Family Office Hedge Fund Mutual Fund
Corporate / Corporate VC
18%
7%
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Non-VC participation in mid & late stage startups
21
Other growing sources of Non-VC money include LP co-investments, hedge funds & mutual funds
0
25
50
75
100
2009 2010 2011 2012 2013 2014 2015P
Asset MgmtFamily OfficeHedge FundMutual Fund
CAGR ’09-’14
44%
73%
66%
45%
74
3846
32
42
26
40
10
34
14
8
31
15
19
8
14
79
2
12
3
5
100
57
90
47
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences. 2015P based on YTD data
Number of mid & late stage startups by investor type
22
Round sizes have exploded and are highly correlated with lack of price discipline
0
30
60
90
120
2012 2013 2014
Asset mgmt Corporate / Corporate VC
Family office Hedge fund Mutual fund PE VC
103
35
60
48
35
20
71
20-25
Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences
Median round size for mid & late stage startup rounds by investor type
78% of billion+ financings are led by non-VCs so far in 2015, up from 60% last year
23
0
25
50
75
100
Jan 2014 Jan 2015 Sep 2015
80
51
30
Source: WSJ and DowJones VentureSource, Fenwick & West
60% led by non-VCs
78% led by non-VCs
Number of startups valued at $1B+ in the US
Conclusion
24
• Let there be no doubt: private tech markets are over-valued
• Driver is influx of new capital sources with less discipline
• Fund markups for some might be filled with Quirky surprises
• Many VCs walking portfolio through private RIP Good Times speeches
• Yet tech innovation will continue to grow as proportion of economy, leading to continued returns for best VCs in industry