state of the us vc market
TRANSCRIPT
Blackhorse Silicon Valley Trip:GGV introduction & State of the VC Market
June 2015
Glenn Solomon
Managing Partner, GGV Capital
Table of ContentsTable of Contents
• GGV Capital Highlights
• Market Overview
• IPO Trends
• M&A Trends
• US Venture Capital Trends
GGV Capital Highlights
15 Years of Investing in the US & ChinaResulting in 18 IPOs since 2010
Resulting in 10 Private $1B+ Outcomes
Didi Dache
Resulting in 21 $1B+ Outcomes
AAC Technologies
Tujia爱屋吉屋
Our Proven Sectors Propel Deal Flow and SuccessE-Commerce Xiaohongshu
TravelDidi Dache
Internet of Things智米Zhimi
Gaming
AAC Technologie
s
Digital Media /Marketing
Youku-TudouPandora
LightChaserPercolate
SoundCloudBuddy Media
Cross-Border
Ehang ZeppWish
QuixeyChukong
OnDemandServices
Opendoor51CreditXiaozhan
IWJWDidi DacheFlightCar
SaaS / Cloud
Zendesk21Vianet
SuccessFactorsSynack
Kingsoft WPSDomo
Global Discovery
PryntWigo
CareerDeanGrubmarket
DianhuabangTotspot
Fund V EcosystemsINTERNET OF THINGS COMMERCE
M O M S / P E T S L I F E S T Y L EA C C E S S O R I E S
Mo Tech
智米Zhimi
CLOUD / SAAS
ON DEMAND SERVICES MOBILE / SOCIAL / GAMES
Baobao
Exutech
Xiaohongshu
G O O D S E D U C A T I O NA U T O
H O M E
F I N A N C E
酷家乐爱屋吉屋
养车点点
Didi Taxi
51zhangdan Opendoor
Deal Profile
• Cross-border advantage• Sector focus• Multi-stage investment
• Market leader with 10x return profile• Typically lead Series A or Series B• Median: $8-10m for 10-20%, double down
on winners
Our Eco-system PartnersConsistent Investment Strategy
GGV Capital: Single Partnership Team
Hany Nada
Jeff Richards
Glenn Solomon
Hans Tung
Jixun Foo
Joined GGV in 2006Prior: DFJ ePlanet, NSTB Singapore, HPRepresentative investments: MediaV, Qunar, Youku-Tudou, Meilishuo, Grabtaxi
Founding Partner
Prior: Piper JaffrayRepresentative investments: DraftKings, Glu Mobile, Houzz, Youku-Tudou, Soundcloud
Joined GGV in 2008Prior: Verisign, Founder of R4, QuantumShift, PWCRepresentative investments: Appirio, BlueKai, Buddy Media, HotelTonight, Flipboard
Joined GGV in 2006Prior: Partech, SPO, Goldman, Sachs & Co.Representative investments: AlienVault, Nimble Storage, Pandora, Square, Zendesk, SuccessFactors
Joined GGV in 2013Prior: Qiming, Bessemer, Crimson Asia, HelloAsia, Merrill LynchRepresentative investments: Forgame, Wish, Curse, Xiaomi, Xiaohongxu
Jenny Lee
Joined GGV in 2005Prior: JAFCO Asia, Morgan Stanley, ST AerospaceRepresentative investments: YY, 21Vianet, Pactera, Chukong, Zepp, Xiaozhan
Market Overview
VC Dollars Growing, but Deal # Holding Steady
Q1 '98
Q3 '98
Q1 '99
Q3 '99
Q1 '00
Q3 '00
Q1 '01
Q3 '01
Q1 '02
Q3 '02
Q1 '03
Q3 '03
Q1 '04
Q3 '04
Q1 '05
Q3 '05
Q1 '06
Q3 '06
Q1 '07
Q3 '07
Q1 '08
Q3 '08
Q1 '09
Q3 '09
Q1 '10
Q3 '10
Q1 '11
Q3 '11
Q1 '12
Q3 '12
Q1 '13
Q3 '13
Q1 '14
Q3 '14
Q1 '15
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
0
500
1,000
1,500
2,000
2,500 US Technology Venture Capital Funding 1998 - Q1 2015
$M Invested Number of Deals
USD
Mill
ions
Source: MoneyTree, PwC and the National Venture Capital Association.
US venture capital dollar volumes have grown significantly since the recession, reaching nearly $15B in Q4 2014, but are still far off from the high of $28B reached in Q1 2000 at the peak of the tech bubble. Volume of deals has been more stable, reflecting increasing deal sizes.
Expansion & Late Stage Rounds Growing in SizeAverage deal sizes for seed and early stage companies have been relatively stable since 2000, but expansion and later stage round sizes have dipped and rebounded with the market, and are now at around 2000 levels.
Q1 '98
Q3 '98
Q1 '99
Q3 '99
Q1 '00
Q3 '00
Q1 '01
Q3 '01
Q1 '02
Q3 '02
Q1 '03
Q3 '03
Q1 '04
Q3 '04
Q1 '05
Q3 '05
Q1 '06
Q3 '06
Q1 '07
Q3 '07
Q1 '08
Q3 '08
Q1 '09
Q3 '09
Q1 '10
Q3 '10
Q1 '11
Q3 '11
Q1 '12
Q3 '12
Q1 '13
Q3 '13
Q1 '14
Q3 '14
Q1 '15
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
US Tech VC: Average Funding Amount per Deal by Stage
Seed Early Expansion Later
USD
Mill
ions
Average Deal Size by Year: Seed Early Expansion Later
1998 $2.6M $5.3M $6.6M $8.3M2000 $4.5M $8.9M $15.9M $22.4M2009 $4.5M $5.0M $7.4M $7.9MQ1 2015 $4.8M $7.5M $18.3M $20.3M
Source: MoneyTree, PwC and the National Venture Capital Association.
M&A Volumes at 2-Year Low After Record Q4 ‘14
Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
0
20
40
60
80
100
120
140
160
$5,967 $6,306 $6,935 $4,899
$3,671 $6,304
$8,688
$4,031
$1,019
$4,371 $4,857 $6,663 $7,620
$3,643
$8,590
$27,787
$2,050
138
97
142
125114
124 124 129
8598
116
94
115 119
135
110
86
US Venture-Backed M&A
Total Disclosed M&A Value $(M) Total M&A Deals
USD
Mill
ions
Source: NVCA & Thomson Reuters.
The first quarter of 2015 has been slow for venture-backed M&A at $2B in disclosed deal value and 86 total deals, the lowest since Q1 2013.
# of IPOs Similarly at 2-Year Lows in Q1 ‘15
Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
0
5
10
15
20
25
30
35
40
$1,527
$5,635
$476
$2,803 $1,683
$17,228
$1,141 $1,408 $717
$2,250 $2,781
$5,320
$3,405 $5,040
$2,592
$4,363
$1,433
14
20
5
11
19
1210
8 8
22
2724
37
29
23
27
17
US Venture-Backed IPOs
Total IPO Offer Amount ($M) Total IPOs
USD
Mill
ions
The first quarter of 2015 has been slow for tech IPOs as well, with the lowest # for IPOs for a quarter since Q1 2013.
Source: NVCA & Thomson Reuters.
US IPO Trends
Median Years to IPO Increasing Over Time…
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140
2
4
6
8
10
12
14
16
6.5
9
56 6.5 7
6 5.5 5.5 6
9 98 8 8 8
7 76
45
9 9
78
9 98
14
11 1110
9 9
11
US Tech IPOs: Median Age of Company (Years)
Technology companies that IPO’ed in 2014 had a median age of 11 years, up significantly from the trough of 4 years in 1999. Since the financial recession starting in 2008, the median age of a tech IPO company has been high relative to historical levels.
Source: Jay Ritter, University of Florida.
…And the Revenue Bar for Going Public is High…
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140
20
40
60
80
100
120
140
160
180
200
$16 $13 $11 $9 $10 $13 $13 $18 $24$32 $29 $35
$23 $27 $21 $22 $17 $22 $22$12 $12
$25
$95$86
$56$68
$58$70
$157
$174
$120
$141
$108$106
$91
US Tech IPOs: Median Sales (Nominal, $M)
Tech companies’ median revenue at time of IPO was at record levels during 2008-2013, and remained high in 2014 at nearly $100M.
Source: Jay Ritter, University of Florida.
…But Profitability is Not a Prerequisite…
19801981
19821983
19841985
19861987
19881989
19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
20122013
20140%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%91%88%
83%
71%
80%84%
74%
86%79%77%
94%
74%
65%
74%70%71%
47%50%
36%
14%14%
30%
40%39%44%
36%
50%
29%
67%71%
64%
36%44%
28%
17%
US Tech IPOs: % of Companies that were Profitable
Source: Jay Ritter, University of Florida.
Despite the relatively older age and higher revenue levels shown by tech IPOs since 2008, % of companies showing profitability dropped in 2014 to nearly 1999-2000 levels, indicating that lack of profitability has not been a barrier to going public.
2014’s Top >$1B Tech IPOs Were Enterprise Companies
Source: Capital IQ. Data as of 6/26/15.
Out of 2014’s >$1B Market Cap, venture-backed tech IPOs, horizontal SaaS (Zendesk, Paylocity) and enterprise infrastructure (New Relic, Hortonworks, Arista Networks) were the best performing categories.
Post-IPO Trading Days0 9 18 27 36 45 54 63 72 81 90 99 108 117 126 135 144 153 162 171 180 189 198 207 216 225 234 243 252 261 270 279 288 297 306 315 324
-100%
-50%
0%
50%
100%
150%
200%
250%2014 US Tech IPOs: Share Price Performance vs. IPO Offer Price
Hortonworks New Relic LendingClub Wayfair Arista Zendesk Opower Grubhub King PaylocityCoupons.com
Hortonworks: +64% from Offer
Arista: +91% from Offer
Zendesk: +163% from Offer
New Relic: +54% from Offer
Paylocity: +109% from Offer
Gruhub: +33% from OfferWayfair: +32% from Offer
Opower: -39% from OfferKing: -37% from Offer
Coupons.com: -26% from OfferLending Club: +2% from Offer
2015’s Tech IPOs Show Early Promise
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 102105108
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
2015 US Venture-Backed IPOs: Share Price Performance vs. IPO Offer Price
MindBody FitBit Shopify Etsy GoDaddy Box
Shopify: + 97% from Offer Price
GoDaddy: + 48% from Offer Price
Etsy: - 11% from Offer Price
Box: +36% from Offer Price
Fitbit: +74% from Offer Price
Mindbody: -1% from Offer Price
Source: Capital IQ. Data as of 6/26/15.
Of the 6 major venture / growth-equity backed tech IPOs in 2015, 4 (Fitbit, Shopify, GoDaddy, Box) are trading significantly above their offering prices. The other two, Mindbody and Etsy have both struggled in the public markets.
Post-IPO Trading Days
US M&A Trends
M&A Deal Value Reached 16-Month High in May ‘15
Source: FactSet.
US M&A (All Sectors) by Volume and Aggregate Deal Value
At Least 34 2014 – 2015 YTD Tech M&As with TEV >$1B Acquiror Target Announced TEV LTM Revenue
TEV / LTM Rev Target Industry
Cox Automotive, Inc. Dealertrack Technologies, Inc. 06/15/15 $4,459.5 $948.4 4.7x Internet Software and ServicesEMC Corporation Virtustream, Inc. 05/26/15 $1,200.0 NA NA Internet Software and ServicesVerizon AOL Inc. 05/12/15 $4,282.5 $2,569.0 1.7x Internet Software and ServicesCapgemini North America, Inc. iGATE Corporation 04/27/15 $4,453.6 $1,288.1 3.5x IT ServicesPermira & CPPIB Informatica Corporation 04/07/15 $4,844.4 $1,055.4 4.6x SoftwareDH Corporation Fundtech Ltd. 03/30/15 $1,250.0 $262.7 4.8x SoftwareBain Capital, LLC Blue Coat Systems Inc. 03/10/15 $2,400.0 NA NA Communications EquipmentHewlett-Packard Company Aruba Networks, Inc. 03/02/15 $2,359.7 $812.4 2.9x Communications EquipmentExpedia Inc. Orbitz Worldwide, Inc. 02/12/15 $1,691.6 $932.0 1.8x Internet and Catalog RetailSS&C Technologies Holdings, Inc. Advent Software, Inc. 02/02/15 $2,549.6 $396.8 6.4x SoftwareCommScope Holding Company, Inc. TE Connectivity Ltd., Telecom, 01/28/15 $3,059.0 $1,900.0 1.6x Communications EquipmentOntario Teachers' Riverbed Technology, Inc. 12/15/14 $3,468.4 $1,089.1 3.2x Communications EquipmentPublicis Groupe SA Sapient Corp. 11/03/14 $3,376.4 $1,383.1 2.4x IT ServicesEngil ity Holdings, Inc. TASC, Inc. 10/28/14 $1,100.0 NA NA IT ServicesVista Equity Partners TIBCO Software Inc. 09/29/14 $4,159.3 $1,076.2 3.9x SoftwareSAP America, Inc. Concur Technologies, Inc. 09/18/14 $7,651.6 $667.9 11.5x SoftwareMicro Focus International plc The Attachmate Group, Inc. 09/15/14 $1,418.2 $575.0 2.5x SoftwareAlliance Data Systems Conversant, Inc. 09/11/14 $2,365.3 $593.8 4.0x Internet Software and ServicesThoma Bravo, LLC Compuware Corporation 09/02/14 $2,090.9 $714.5 2.9x SoftwareShaw Communications, Inc. ViaWest, Inc. 07/31/14 $1,200.0 $168.0 7.1x Internet Software and ServicesZillow Trulia, Inc. 07/28/14 $3,090.5 $208.6 14.8x Internet Software and ServicesAristocrat Leisure Ltd. Video Gaming Technologies, Inc. 07/06/14 $1,283.0 $236.0 5.4x Electronic Equipment, Instruments and ComponentsOracle Corporation MICROS Systems, Inc. 06/23/14 $4,604.1 $1,337.9 3.4x SoftwareTE Connectivity Ltd. Measurement Specialties Inc. 06/18/14 $1,603.5 $412.7 3.9x Electronic Equipment, Instruments and ComponentsSanDisk Corp. Fusion-io, Inc. 06/16/14 $1,050.4 $387.4 2.7x Technology Hardware, Storage and PeripheralsThe Priceline Group Inc. OpenTable, Inc. 06/13/14 $2,495.5 $198.3 12.6x Internet Software and ServicesKKR Internet Brands, Inc. 06/02/14 $1,100.0 NA NA Internet Software and ServicesCobham plc Aeroflex Holding Corp. 05/20/14 $1,459.9 $639.9 2.3x Electronic Equipment, Instruments and ComponentsNPC Group, Inc. Mercury Payment Systems, LLC 05/12/14 $1,650.0 $237.0 7.0x SoftwareHellman & Friedman Renaissance Learning Inc. 03/13/14 $1,100.0 NA NA SoftwareElliott Management Riverbed Technology, Inc. 02/25/14 $3,425.4 $1,041.0 3.3x Communications EquipmentFacebook, Inc. WhatsApp Inc. 02/19/14 $19,696.7 $10.2 NM Internet Software and ServicesLenovo (United States) Inc. Motorola Mobility Holdings, Inc. 01/29/14 $22,201.8 NA NA Communications EquipmentVMware, Inc. AirWatch, LLC 01/22/14 $1,545.0 NA NA SoftwareMean 3.7xMedian 4.8x
…But VC-Backed Unicorn M&A is Way Down from Last Year
US Venture Capital Trends
Seed Funding Volumes Have Grown Steadily…Seed venture capital financing dollar and deal volumes have both been on a steady increase, reaching nearly $400M in Q4 2014.
Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '140
50
100
150
200
250
300
350
400
450
$0
$50
$100
$150
$200
$250
$300
$57 $69 $63 $75 $102
$148 $140 $123 $129
$174 $204
$224 $199
$216
$257 $221
$261
$329 $353
$390
6378 87 81
111
143 152133
152
188
218201 202 198
252
191
245 242
247
242
Seed Venture Capital Funding & Deal Volume
Seed VC Dollars $M # Seed Rounds
Source: CB Insights.
…And Seed Deal Sizes are Creeping Upward…
Source: CB Insights.
…Driven by a Record Number of Seed Funds…
Source: CB Insights.
$1-$50 $51-$100 $101-$150 $151-$200 $201-$250 $251-$300 $301-$350 $351-$400 $401-$450 $451-$500 >$501
32
9 4
8 5 4 0 1
7 2
9
91
33
18 12
2 6 7
3 3 7
15
New VC / Growth Equity Funds Raised by Size (2013 - Q3 2014)
2013 Funds Raised 2014 Funds Raised
In the first three quarters of 2014, there were 91 micro-VC funds (<$50M AUM) raised.
…But Series A Volumes Overall Remain SteadyThe “Series A Crunch” persists as seed funding volumes continue to climb, but Series A volumes stay relatively stable.
Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '140
500
1,000
1,500
2,000
2,500
0
50
100
150
200
250
300
$1,040
$1,338 $1,477$1,496
$1,310$1,506
$1,241
$1,838$1,679
$2,031
$1,646
$1,888220 219194
228 222246
232 242 215
256
224
256
VC-Backed Series A Financing
Series A VC Dollars ($M) # of Rounds
Source: CB Insights.
2014 VC Fundraising Far Exceeded Tech IPO Proceeds
Source: CB Insights.
…And the Gap Has Only Widened in 2015
Source: CB Insights.
Entrepreneurs are Accessing Diverse Capital Sources
Selected Early Stage SMB / Startup Crowdfunding Platforms
Over $104M raised for early stage tech startups in 2014 (estimated ~$70M in 2013)
Over $300M raised for SMBs in total
Over $200M raised for SMBs in total
Over $189M raised for SMBs in total
Over $135M raised for SMBs in total
Over $100M raised for SMBs in total
Over $90M raised for SMBs in total
Over $70M raised for SMBs in total
Over $35M raised for early stage tech startups over lifetime of platform
Over $10M raised for early stage tech startups over lifetime of platform
Startups have access to an increasing number of fundraising options beyond traditional venture capital, at both the early and late stages.
Mutual Funds & Hedge Funds in VC-Backed Deals
2011 2012 2013 201402468
1012141618
Janus Fidelity Blackrock Wellington T. Rowe
# of Mutual Fund Investments in VC-Backed Companies
2011 2012 2013 20140
5
10
15
20
25
30
Maverick Coatue Valiant Passport Dragoneer Tiger
# of Hedge Fund Investments in VC-Backed Companies
…Yielding More >$1B “Unicorns” Than Ever Before
Source: CB Insights.
2011 2012 2013 2014 2015 YTD
16 10 16
3829
New Unicorns Added by Year (YTD as of 5/20/2015) 2015 Pace: 76
...With Company Friendly Deal Terms (US standards)Fenwick & West conducted a survey of 37 companies who raised money at valuations >$1 Billion in the 12 months prior to March 31 st, 2015 to evaluate the impact of deal terms on potential returns. Downside protections were stronger than upside benefits, and liquidation preferences and minimum IPO conversion prices in these unicorn deals significantly reduce downside risk for VCs. As a result, “valuations of these companies could fall on average by 90% before the unicorn investors would suffer a loss on their investment.”
Source: Fenwick & West, “The Terms Behind the Unicorn Valuations.”
Highlights Downside Protections • For the 37 “unicorns” in the survey, average valuation was $4.4B
and median valuation was $1.6B (implying a few super-unicorns in the mix)
• The average valuation increase over the prior round was 180%
• 25% of financings were led by traditional VCs, 75% by non-traditional VCs (mutual funds, hedge funds, sovereign wealth, corporations)
• 35% of the deals were valued at $1-$1.1B, implying that the companies were optimizing for attaining unicorn status in their negotiations
Upside Participation
Liquidation Preference
Senior Liquidation Preference
IPO Price Must > Investment Price
Payment of More Shares if IPO Price < Investment Price
Weighted average future financing anti-dilution
100%
19%
16%
14%
14%
Participating Preferred
Multiple Preferences
IPO Auto-Convert to Common Above Price Paid by Investor
5%
3%
11%