state of venture capital 2013

State Of US Venture Capital Q1 2013

www.startupcv.com twitter: @dicktim

Startup Capital Ventures

•  Early stage enterprise-focused venture capital in Silicon Valley & Hawaii

•  Top decile fund performance •  We like technology, IP and the cloud •  We love insanely curious domain-expert

entrepreneurs

• Silicon Valley • Honolulu

What’s Going On In The US VC Cycle?

VCs Invest In Startups

Startups Exit Via M&A or

IPO

VCs return

capital to LPs

LPs Invest In

VCs


Agenda

•  LP Investments In VC

•  VC Investing Activity

•  Exit Activity

•  Conclusions


US Venture Capital Raised Is Stable At Around $19B

.com boom & bust

Source: NVCA


The Number Of US Venture Funds Raised Is Also Stable

Source: NVCA


Follow-On Vs. New Funds Raised Is About 70 / 30 Split

Source: Thomson Reuters / NVCA

• Silicon Valley • Honolulu "

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Agenda




•  Conclusions


$26B Of Venture Capital Invested Is Well Above $19B Of Inflow To Funds



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Software & Biotech. & Cleantch Are The Largest Investment Sectors



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IT Venture Investment Is Thriving

•  “Life sciences investment was suppressed due in part to the impact of the regulatory environments

•  Clean tech investors began moving towards deals less dependent on government support

•  Investment in information technology flowed, as far fewer obstacles impeded success in those sectors” - Mark Heesen, President NVCA


Early Stage Investing Has Returned While Seed Stage Declines



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Silicon Valley Continues To Dominate US Venture Capital Investment



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Early Stage Deal Size Is Decreasing As Startups Become More Capital Efficient



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Crowdsourced Equity Is Mostly Small Tranches From Angels


Source: Massolution, Crowdsource.org

" "

" "

Up-Rounds Continue To Constitute Most Financings

Source: Fenwick & West


Up-Round Valuation Increase Continues About +85%


Source: Fenwick

trends in terms of venture financings in silicon valley — fourth quarter 2012 6

the fenwick & west venture capital barometer™ (magnitude of price change) — Set forth below is the average percentage change between the price per share at which companies raised funds in a quarter, compared to the price per share at which such companies raised funds in their prior round of financing. In calculating the average, all rounds (up, down and flat) are included, and results are not weighted for the amount raised in a financing.

The Barometer results by series are as follows:

100% *90%

80%

70%

60%

50%

40%

30%

20%

10%

0%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

70%

60%

50%

40%

30%

20%

10%

0%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

30%

22.5%

15%

7.5%

0%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

54% 57%

51%

41%

18%16% 16%

17%

52%52%

60% 62%

20%

43%

71% 78%

64%

19%

37%

69%

32%

21%

31%

85% 85%

99%

47%

9%

34%33%

23%

35%

Barometer Combined Total

Uncapped Liquidation

Redemption

Senior Liquidation Preferences

xcomplete

xcomplete

xcomplete

xcomplete

200%

*

160%

120%

80%

40%

0%

-40%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

246% **

220%

*194%

168%

142%

**

116%

90%

64%

38%

12%

-14%

-40%Q1’11 Q2’11 Q3’11 Q4’11 Q1’12 Q2’12 Q3’12 Q4’12

Series B

Series C

Series D

Series E and Higher

Software

Hardware

Life Science

Internet/Digital Media

Cleantech

12%

36%43%

19%

67%

1%18%

49%

62%

10%

19%14%

39%38%

54%

42%

92%

177%

44%

74% 78%

44%

56% 57%58%

104%

134%

121%

164%

147% 141%

155%

Barometer Percentage Change By Series

Results By Industry Barometer Over Time

xcomplete

xcomplete

*One software company had a 1460% up round and one internet/digital media company had a 1190% up round in 2Q12. If these were excluded the Barometer result for 2Q12 would have been 70%.

*Please note that the two above mentioned software and internet/digital media companies with greater than 10x up rounds in 2Q12 were both Series C rounds. If these were excluded the Barometer result for Series C rounds in 2Q12 would have been 72%.

" "

Agenda




•  Conclusions


" "

IPO and Especially M&A Activity Is Strong



VC-backed IPO and M&A Valuations Remain Robust



"

2012 is ex Facebook (avg. would be $5B)

• VC Returns Continue to Outperform • Public Markets VC Returns Currently Untypically Lagging

Booming Stock Markets

.com boom

.com bust

Source: NVCA, Cambridge Associates • Silicon Valley • Honolulu

Medium Size Funds Produce Best Returns

• Confidential To Recipient "

• Source: Cambridge Associates, NVCA

0

5

10

15

20

25

30

35

Funds < $50M $50-$150M >$150M

Fund

IRR

(%)

Fund Size ($)

US Venture Capital Fund Returns (1998-2008)

Agenda




•  Conclusions


The Venture Market Is Moving Nicely

•  Plenty of deals are getting funded •  Deal quality is solid with good revenue and

profitability •  Exit activity is good in both number of

deals and valuation •  LPs continue to invest in VC albeit not at

the level VCs are investing in startups


VCs Invested $26B In Portfolio

$210B In Venture Exits (IPO + M&A proceeds)

LPs Invested $19B In VCs

2012 Venture Funding Cycle Created Good Returns For LPs But Still Imbalanced

Sources: NVCA, Thomson Reuters, Cambridge


Market Equilibrium Will Return (One Way Or Another)

•  Good VC exit markets create strong returns for LPs (better than public markets)

•  Healthy funding levels at all stages •  VCs solidly funding new deals •  LP funding growing but still lagging VC returns

Venture capital shrinks to match LP investment in VC

VC funding grows as LPs return to VC sector


• Copyright © 2010 Startup Capital Ventures

Author: Tim Dick •  General Partner, Startup Capital Ventures

–  Boards: SilverTail (acquired EMC), TuneIn, Adama Materials, TagArray

•  Entrepreneur, angel and advisor has raised over $300M in early stage capital with over $1.2B of exits –  Match.Com (Angel, acquired by IAC) –  WorldPages.com (Founder, CEO, IPO NYSE:WPZ acquired by BT) –  TRUSTe.org / Privacy Assured (Internet privacy standard) –  Accept.com (mentor capitalist, acquired by Amazon) –  Grassroots Enterprise (Founding President, acquired by Edelman) –  Hawaii Superferry (founding CEO) –  Dali Wireless (turnaround CEO)

•  Boston Consulting Group •  Beckman Instruments: invented first “instrument on a chip” (1985) &

first ICU usable speech synthesizer for intubated patients (1981) •  MBA, Stanford University •  BSEE, University of California

www.startupcv.com [email protected]

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