March 4, 2013 § Leave a comment
A good follow up post to my recent 2005-2006 Archives Post. A summary perspective of Silicon Valley Venture Capital Financings (Then; 2006) and (Now: 2012).
Q4 2012 – Most Recent Fenwick Survey
“The overall results from the fourth quarter of 2012 show that good companies can continue to get very healthy valuations. But with venture investing down in both the fourth quarter and 2012 generally, raising venture capital is not easy. However with Nasdaq up in both 2012 and 2013 to date, there is reason to believe that risk taking and the liquidity markets will improve,” added Patrick.
About the Survey
The Fenwick & West Quarterly Venture Capital Survey, co-authored by corporate partners Barry J. Kramer and Michael J. Patrick, has been published for over 10 years and offers a unique view of the venture capital market in Silicon Valley by providing insight into the changes in venture capital valuations and terms. Focusing exclusively on trends in venture financing and valuations, the Fenwick & West Survey complements the economic data presented in the Dow Jones VentureSource Survey and the MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.
Results By Industry For Current Quarter — The table below sets forth the direction of price changes, Barometer results and number of financings for companies receiving financing in 4Q12:
Fenwick’s Barometer: This concept highlights the magnitude (amount) of share price increase for each private company round (% of price increase). This helps give flavor to the other metric (# of up rounds or % of up rounds) by showing “how much of an up round?”
The Fenwick & West Venture Capital Barometer™ – which measures the change in share price of Silicon Valley companies funded during the quarter compared with the share price of their previous financing round – showed an 85% average price increase for the quarter, a slight increase from the 78% reported in the third quarter of 2012. The median price increase of these financings was 41%, also an increase from the 23% recorded in the third quarter.
Barometer Trend By Industry — The table below sets forth Barometer results by industry group for each of the last eight quarters.
Angels and Accelerators.
There continues to be concern that the angel/accelerator environment has become frothy. CB Insights reported 1749 seed financing rounds in 2012, compared with just 472 in 2009, while Series A rounds grew much more slowly, from 418 in 2009 to 692 in 2012, indicating that there will likely be a lot of seed funded companies that won’t obtain Series A investment. While this is not necessarily bad, as there is value to making small bets on a lot of high risk opportunities, at some point the odds get too high.
Notably, Y Combinator announced in 4Q12 that the amount of money loaned to each of its companies would be reduced from $150,000 to $80,000, and that the size of its class would also be reduced. And Polaris Venture Partners has indicated that it is significantly scaling back its “Dogpatch Labs” incubator. However we do not see a trend yet here, as accelerators like TechStars and 500 Startups are not reducing their size. (Lizette Chapman, VentureWire, December 20, 2012).
March 1, 2013 § 5 Comments
I went back to my original blog I started in 2005-2006 and figured I’d post them here for primarily historical purposes. Some are quite interesting from a hindsight perspective. Also interesting to compare my writing style and interests then vs. now…7 years ago
August 02, 2006
More evidence that what we are all-seeing in the trenches of Silicon Valley is also being reflected in the industry data. I’ve been telling everyone I know that the venture industry (which includes the VC’s firms as well as the entrepreneur’s and their companies) is as healthy as it’s been in recent memory. It continues to feel very much like 1997-1998 (prior to the bubble). Yes, there are also signs of “bubblish mentality” through some recent fundings (VC bets), but only 1-off stories for now and it feels like the hard lessons of the past have indeed been learned in better fundings and better management.
RETURN ON FUNDINGS NEARLY 20 PERCENT IN FIRST QUARTER
By Matt Marshall Mercury News
Venture capital firms continued to show strong gains through the first three months of 2006, showing that the Silicon Valley formula of placing bets on young companies is still paying off.
According to data released this week from Thomson Financial and the National Venture Capital Association, venture funds pulled in annual returns just shy of 20 percent, approaching the high-end of the 10-year average. That was up from 13.3 percent in the fourth quarter of 2005, and 4.6 percent a year ago.
How long the healthy returns last may depend on the future health of the market for initial public offerings of stock, which has been flagging lately. If the growing fleet of venture-backed start-ups can’t successfully go public and offer shares for sale in the market, venture returns will slow.
NOTABLE FUNDINGS AND FACTS FROM Q2 2006
$100M rounds of investment are increasing. This is a significant indication that large dollars from smart VC’s are betting that these companies will be worth at least $1B which could foretell the return of a healthy IPO market in the next 18 months (end of 2007/2008)
Altra, a Los Angeles biofuel company, has raised $120 million in a second round of funding. It is one of the largest rounds of funding ever raised by a renewable-fuel company. Limelight (an Akamai competitor) that is the technology backend supporting YouTube and other internet video streaming also raised +$100M in Q2 2006.
I’ve also heard several indications of $50M Series A fundings that will develop starting in Sept 2006 from several promising startups going after big markets requiring large investments.
Doll Capital Management, a Menlo Park venture capital firm that has recently invested aggressively in China, has raised a new fund of $500 million to invest in fresh companies. It has offices both here and in Beijing, and also invests in Japan.
TCV raised one of the largest ever funds in Q2 2006 at 1.5 Billion. Total Funds raised by VC Firms in Q2 2006 was almost $6.5 Billion.
Venture capital investment in Startup and Early Stage companies remained flat from the prior quarter in terms of dollars but increased 13% in the number of deals to $1 billion going into 268 deals, suggesting that VCs are offering smaller rounds to more companies. Average post-money valuations of Early Stage companies dipped slightly to $14.06 million for the 12 months ending Q1 2006.
Funding for Expansion stage companies hit the highest investment level in four years, reaching $2.9 billion, a 17% increase over the prior quarter. The number of deals rose slightly to 329, a 6% increase from Q1. The average post-money valuation for Expansion Stage companies increased to $59.16 million
The number of companies receiving “First Time Financing” reached a five-year high in Q2 2006 with 282 companies receiving $1.3 billion. This increase coincides with the recent fundraising cycle and reflects the opportunity to deploy funds into first-time companies early in a fund’s life.
Source = NVCA (National Venture Capital Association) Data.
The Silicon Valley startup market is on a healthy pace of company creation, job/employment creation and once again providing the underpinnings for the next successful round of public companies.
October 31, 2005
Up From The Ground Came A Bubbling Crude…
Speculating on the health of Silicon Valley has been a recurring theme among Silicon Valley circles and media pundits for many months. It’s clear to me that “we” indeed are back. The risk/reward balance among entrepreneurs and VC’s has definitely shifted decidedly toward the risk side of the teeter totter…and that is healthy for the startup community, Silicon Valley, and small business growth.
The recent proof points that Silicon Valley is healthy again?….
1) E-commerce is back in a big way. Several startups have been funded recently and the buzz is back. Alibaba in China is the recent pinnacle of these valuations. Even the Kozmo founder is going back “all-in”
2) Online Advertising has risen from the dead and buried (thanks Google). Pure Play media companies valuations are trading both publicly and privately at 6x-10x Revenues and +25-40x EBITDA. About.com (+$400M), Then you have Baidu in China.
3) Acquisitions Galore: In the first half of 2005, media/interactive M&A transactions totaled +$8B vs +$2B in the first half of 2004 (think Intermix/MySpace, AskJeeves, DoubleClick, Shopping.com, etc). We hear of a new big M&A deal almost every other day (Skype, Siebel, Macromedia, now talk of AOL..). Ruperch Mudoch and Fox Interactive are out buying first asking questions later (Scout.com, Intermix, IGN combined $1.5B so far and counting)
4) The big players (Microsoft, Google, Yahoo) are gobbling up smaller companies as fast as they can (Keyhole, Picasa, Dialpad, Teleo, Flickr, Snapfish, Konfabulator, Urchin, Dodgeball, and we are hearing Technorati and Facebook are next).
And finally to put an exclamation point on this “bubbling crude” theme (the return of Silicon Valley), this week I was involved in 2 separate discussions with CEO’s, VC’s, and investment bankers in which I heard the following:
1) Roll Up Funding Strategies are alive and well in today’s very active M&A market. Buy companies..roll them up….sell the whole package for more
2) B2B is the next big strategy shift now that “all things consumer” has had such success in the past few years. It’s time to start selling products and services to businesses now.
Money and ideas are bubbling up…now the trick is whether we can refine them and into what “grade” (87, 89, Premium, or simply sludge)……
“they said California is the place you oughta be so they packed up their bags and moved to the Valley…..Silicon that is…….stock option pools and internet stars”
October 27, 2005
The “Golden Age” of Technology Startups?
…And How Today’s Entrepreneurs and Startups Are Quite Similar To Today’s Top Chefs and Restaurants…..
The kitchen is getting crowded. There are several cook’s in the kitchen and everyone is using the same ingredients. These analogies have been recurring themes in my head the past several months. Start-ups are back in a very visible way in Silicon Valley, the VC market is very active, and the M&A market is exploding.
So what’s different this time? The article below offers a good premise that we are entering a “golden age” of company creation. After reading it, the analogy I used above (startups vs top chefs and restaurants) dawned on me. By combining today’s specialized technology ingredients (XML, RSS, etc) with several basic technology ingredients (Linux, etc), today’s very smart entrepreneurs can be likened to some of the top chefs in the world where star status is not differentiated by the ingredients used (there are no secret cooking ingredients) but rather by HOW the ingredients are combined and MOST IMPORTANTLY how the whole package is presented (not just the plate of food but all the way down to the restaurants ambience and wait staff service level).
Below are a few articles with different but similar viewpoints on this new “golden age” of technology
It is likely that in the coming years we will see sizable businesses (based on yearly revenue) come and go at what will seem to be alarming speeds. Businesses can now be created in a matter of weeks to capitalize on whatever important trend or market demand is surfacing. Huge amounts of venture capital in many cases will not be required for establishing the infrastructure, the billing and accounting systems, the transport or supply systems, the IT function – and the list goes on. Such commodities will be expertly and automatically leveraged by super-deep, business-to-business automation, and new enterprises will startup by focusing their energy on differentiating their value in the marketplace rather than creating and supporting all of the associated accoutrements.
Link: Print Story.
Hornik also posted yesterday on a very similar theme here
Built To Be Bought
August 22, 2005
The VC market is getting healthy again. VentureWire reported today that $6 Billion of new funds were raised by VC’s in Q2 2005 (that’s outside investors (Limited Partners) giving money to VC firms so they can invest in startups at some later time). For perspective, $2.5B of this was raised by only 3 firms (Menlo, August Capital, and NorthBridge). This $6B quarterly number puts CY 2005 on pace for VC’s raising nearly $25 Billion of capital that they can invest in their respective startup portfolio’s.
I don’t believe the media does a good job of giving perspective to VC data. So let’s give it a shot by comparing how much was raised vs how much the VC’s have invested historically in their startup portfolio’s.
Reviewing PWC’s Money Tree Data we find the following VC funding history (VC’s investing in startups) for the last 10 years. In 1995, there was $7 Billion invested. 1996 = $11B; 1997 = $15B; 1998 = $21B; 1999 = $54B (beg of the bubble); 2000 = $105B (bubble); 2001 = $41B (post-bubble); 2002 = $21B; 2003 = $19B; 2004 = $21B; 2005 ~ $25B (estimate). I couldn’t get the graph to work out for the X/Y Scale but all you need to know in the picture below is the gridlines are every $20B (Y scale) while each dot represents a year (1995-2005).
In terms of #’s of Companies funded over the last 10 years, the data looks like this.
1995 = 1800
1996 = 2500
1997 = 3100
1998 = 3600
1999 = 5400
2000 = 7800
2001 = 4500
2002 = 3000
2003 = 2900
2004 = 2900
2005 = 3100 (estimate)
Other interesting consistent historical insights from this data:
- 30% of all U.S. VC Backed Companies are funded in Silicon Valley. This grows to 45% if you include all of the West Coast (Southern Cal, Seattle Area, etc)
- Other than the bubble period, 200-250 companies get funded every quarter in Silicon Valley. We are on pace for 900-1000 companies funded in CY 2005. My gut says this is a function of the # of VC’s and the # of partners and time/focus.
- The average investment (dollars / # of companies) per VC funding is a rather tight range of $8.5M-$9.0M per company funded. Again, an average. This compares to pre-bubble funding amounts of $5-$6 million vs the peak bubble days of $16-$17 million per funding. I’m looking for this number to increase over the coming quarters as exits today are more visible and getting bigger faster is once again in vogue.
The data suggests that we are on track for the “old normal” of 1998 (borrowing from and apologies to Roger McNamee’s new normal analogy). I remember commenting to a few colleagues last fall (Oct 2004) that it felt to me like the VC industry had really started investing again for the first time in 3 years. Today, it feels like the pace continues to pick up and if the data keeps rolling in like this, the VC market will continue their powerful economic engine of Silicon Valley. VC’s fund companies, companies hire people, people buy things from companies, companies buy other companies, companies go public..and so on.
My gut tells me we are going to have a very fun next few years again….stay tuned…
Finally, VentureWire’s story as a reference:
venture market summary
By VentureWire Staff Reporters
U.S. venture capital firms raised $6.07 billion in new funds in the second quarter, the largest amount raised in a single quarter since late 2001, according to industry tracker VentureOne. The amount starkly contrasts the $2.3 billion brought in during the second quarter of 2004, and it represents an 80.5% increase from the $3.36 billion raised in the first quarter of 2005.
……..The latest second quarter figures are heightened by several large venture firms that closed large-sized funds during the second quarter. Menlo Ventures, closed its tenth fund with $1.2 billion in April, and both August Capital and North Bridge Venture Partners’ new funds topped $500 million.
August 20, 2005
Some excerpts from what could be a huge breakthrough on actually how to produce NanoTubes…..
“Rarely is a processing advance so elegantly simple that rapid commercialization seems possible, and rarely does such an advance so quickly enable diverse application demonstrations,”
The nanotube sheets are produced at up to 7 meters per minute by the coordinated rotation of a trillion nanotubes per minute for every centimeter of sheet width. By comparison, the production rate for commercial wool spinning is 20 meters per minute.
The nanotube sheets can be made so thin that a square kilometer of solar sail would weigh only 30 kilograms.
There are several thousand ideas for the use of nanotube technology from artificial organs to supercapacitors, batteries, fuel cells and thermal-energy-harvesting cells exploiting giant-surface-area nanotube sheet electrodes; light sources, displays, and X-ray sources that use the nanotube sheets as high-intensity sources of field-emitted electrons; and heat pipes for electronic equipment that exploit the high thermal conductivity of nanotubes.
But my favorite is this one. An extremely intriguing idea … a Space Elevator!
Stay tuned for more on NanoTubes and NanoTechnology….
Sidenote: My gut tells me that Nanotechnology is very possibly today’s “lightbulb invention” by Edison circa 1870. Think of all the applications and technologies that resulted from that invention to present day which includes transistor technology. It’s important to remember that a transistor was simply another “combination technology” combining the technologies of a “transmitter” (sound waves) and a “resistor” (conductive electricity). Transistors replaced Vacuum Tubes and performed the same functions by greatly reducing power and space requirements. With Nanontubes, we are therefore on the verge of going even smaller, lighter, and even greater power reductions and thus being able to produce the incremental technology leap needed for the next century of applications.
August 18, 2005
What a difference a year makes! Today (Aug 18th) Google filed to sell an additional 14 million shares in a secondary offering. At the current price $280-$290 per share, that will add a few billion of cash to their current $3B war chest leaving them with $5-$7 billion of cash and growing. While others in the media are reporting this offering will add $4B of cash (14M shares * $280 per share), I predict this will not be the case. Usually, in these situations, the insiders (Larry, Sergei, Kleiner Perkins, Sequoia, etc.) take the opportunity to unload/diversify a large amount of their holdings and thus the cash raised does not flow through to the company’s bank account.
But the real story here is what a difference a year makes! This secondary offering (exactly 1 year later) is the effective equivalent of a 33 million share offering at $168 per share. When Google initially filed last year at their $135 range, they were scoffed out of the market by literally everyone (I was certainly on that bandwagon) and subsequently forced to drop their offering (number of shares sold and their IPO price) all the way down to $85 per share (37% price reduction).
After several false starts and auction process communications bungling, they eventually limped out the door and sold 19 million shares at $85 per share on Aug 19, 2004 for $1.6 Billion of cash. Since then, however, their execution and stock price have gone virtually straight up.
Kudos to Google for making hay while the sun is shining.
Full Disclosure: I still own the original 7 shares I was allocated at $85 per share last year that I bought to simply be “part of the auction process. I laugh every time I think of owning 7 shares of anything…but I’m no longer laughing at the +200% return on those shares.
August 11, 2005
Fred Wilson (a VC) nailed it below. His advice on how you absolutely need to find people (preferably your team) to be completely honest with and rely on is how great teams and companies are made. The resulting loyalty created and the amazing abilities of all team members to go above and beyond is the secret sauce of a great culture.
Link: A VC: VC Cliche of the Week.
A CEO/founder must surround themselves with people who they like, trust, and can lower their guard with. The best leaders have a “kitchen cabinet” of people they can be completely honest with and who they rely on for advice, counsel, and support. It is tricky to provide that back to the same people who are providing it to you, but you must try to make it happen.
August 08, 2005
Yahoo is reportedly bidding up to $1 billion for a 35% stake in Alibaba.com – China’s leading e-commerce site. The $3B valuation rationalization must be based on “what other people are willing to pay”. If historical trends are consistent, we are likely to see a very busy six-nine months of acquisition / investing activity in all things Internet in China….The Race is On!….
August 05, 2005
It’s 1995 in China. They just had their Netscape. The internet wealth creation engine just woke up in China. The world goes to where the money is and the money is clearly in China. Baidu is China’s Google with Netscape’s excitement. Stocks simply don’t IPO at 27 and close at 120 in today’s market…but one just did. This is a seminal event. An event the historians can pin the following economic value creation on. It will be written that way a few years from now. That’s what you get when you have 45% market share in a search website vs Google’s 30% market share…it’s the only country in the world that is besting Google. Time to take notice. The telltale signs will be all other Chinese based internet stocks having unnatural valuation increases. Then comes all other Chinese companies purporting to have some sort of internet presence / product. Then comes the internet portions of these business being worth more than the brick and mortar pieces. We’ve seen it all before. The bubble will expand..this time faster..and even after the eventual consolidation, China will be put on the map as an internet powerhouse and the technology world will have changed virtually overnight from a US centric world to a worldwide economic engine..and everyone (including the US) will win.
The stock trades under the ticker BIDU and though it’s initial US Nasdaq prospectus price range was $19 a share, they priced it at $27, it opened at $66, and it closed at $120 today with a market value of essentially $4 Billion. Wow! not bad for one day’s investment. Not bad for a company with $5M of revenue last quarter on a run rate of $30M of revenue for CY 2005 (that’s only +130x Revenue).
Now all we need is the voiceover and the T.V. commercial…..B AAAA D UUUUUU (must be screamed like Yahoo)
The brain can learn, just as a human brain learns, he said. When the system is first engaged, the neurons don’t know how to control the airplane; they don’t have any experience.
I heard this on the radio this morning and I was stunned. Goes to show you how far our current technology has to go. The idea that single brain cells (neurons) immediately start connecting to each other in a Petri Dish and then start instinctively start working together really makes you wonder.
To think these cells start learning how to fly a flight simulator level and straight with only 25,000 neurons is incredible. Even more incredible is the knowledge that a common house fly only has about 200 neurons and look what it can do! Try catching a house fly. The fact that it’s neurons react so quickly to outside stimuli makes you wonder where all this is going.
My first reaction to hearing all this are that brain cell neurons must by nature optimize for efficiency and for risk avoidance (flying the plane level and straight; not getting hit) without really knowing what it’s doing. It’s a react-first understand-learn-adapt system vs. our current technology of understand-first and program-react-perform system.
Being the parent of a 4 yr old and 1 yr old, I see these neural network “systems” in action everyday….continuously learning and adapting to their environment.
I wonder what artificial neural networks will be controlling 10 yrs from now? 50 yrs from now?
July 21, 2005
I was introduced to Bloglines a few weeks ago and within hours of using it had one of those “a-ha!” experiences. While I never paid attention to all the talk of “newsreaders” or “RSS” before and thought these technologies were for the ultra-geeks (I would be only a major geek) – the ability to read all of my frequently visited sites easily and quickly in one browser was as user-friendly as iTunes or even email. Browsing websites has now changed for me. I let many of my frequently visited sites now come to me and only show me the new stories. A huge benefit and time saver.
But that wasn’t my only immediate “a-ha!”. Having spent the last +15 years in the corporate finance world, it’s hard to imagine that we still live in an Excel world. Whereas almost every other technology has evolved since 1990, the vast majority of financial data reporting for small-midsize businesses and many small cap public companies is still based on a multi-step data extraction, organization, and presenting a final report with Excel. I can tell you from first hand experience that Excel is a very substandard tool for presenting important data in a timely and consistently accurate way. Quick, quality decisions therefore suffer unnecessarily. And yet it’s the middle of 2005 and those of us without access to a $1M data warehouse software package are still relegated to using a souped up 2 dimensional calculator.
RSS – or Really Simply Syndication – is an acronym created by the media types who invented it. It just as easily could be called RSDD (Really Simple Data Distribution). As long as you have a standard set of inputs (data instead of webpages), there’s no reason why someone can’t create the same type of Bloglines “DashBoard” for the business. We should be able to track the CEO’s top 10 metrics out of the database. We should be able to give the VP of Marketing the real-time product sales increase within minutes after the email newsletter is sent. When these key metrics change, the DashBoard automatically signals the executive to take a look. Real-time, actionable information from complex transactional databases. RSS for the Enterprise is the holy grail and one that will carry and create tremendous market value.
A few links I’ve found on the subject now that I’ve started searching for who else has this idea: