a look into the venture capital industry
DESCRIPTION
enture Capital is one of those things that’s often discussed, but maybe not completely understood. You’ll often hear about a company being “venture backed” or famous venture capital firms that make hugely profitable investments in things like Facebook. It’s rare, though, to see a breakdown of how the venture capital industry actually works. For instance, what’s the difference between a venture capital firm and an angel investor? How does a company end up getting venture capital funding? How much money is exchanged? Where does it take place? Is it all in Silicon Valley? You’ll be surprised how much venture capital money is in places like Texas and the Midwest. Source: http://blog.surepayroll.com/look-inside-venture-capital-industry/TRANSCRIPT
Where Is The Money?
In 2nd Quarter
A LOOK INTO THE
Venture capitalism is a way for young companies or startups to receive funding from investors that provide the capital necessary to grow or expand a fledgling business. Venture capitalism is traditionally seen as a high risk, high reward type of investment and investors are typically seated on the board of the company with a say in decisions and partial equity.
Although venture capitalism is high risk, high reward, it is a huge business and is responsible for funding many of the businesses that would otherwise fail. Small businesses are crucial to the US economy, and venture capitalism supports that ecosystem.
$1.3 billion
$7.1 billion
$1.2 billion
$538 million
$497 million
$411 million
$364 million
$354 million
8%Media
6%IT
$247 million
$222 million
JAN FEB MAR APR MAY JUN
Software
47%
SILICON VALLEY
NEW ENGLAND
NEW YORK METRO
LA / ORANGE COUNTY
MIDWEST
NORTHEAST
SOUTHEAST
TEXAS
The top 10 regions of investments by venture capitalists:
InvestmentLife-Cycle
Common Stages of Venture Capital Investing?
Total InvestmentsAs of the first two quarters in 2014 venture Capitalists have invested approximately
TWO DIFFERENT TYPES OF VENTURE CAPITALISTS
$9.8 BillionIn 1st Quarter
$13 Billion14%Biotech
BUSINESS PLAN SUBMITTED: venture capitalists review the business plan and speak with the entrepreneurs
1
EXIT: Sometimes known as a liquidity event; at maturation, the venture funds exit the business, through IPOs (Initial Public Offerings), acquisitions, and mergers
5
INVESTMENT: capital is provided to the business, usually as a part of a deal trading equity and/or debt
3
EXECUTION: The investor(s) become actively involved, providing funds, advice, and oversee milestone completion
4
DUE DILIGENCE: the prospective investor looks into the business in great detail to get a full picture of the company’s strengths, weaknesses, and operations
2
Life-cycles typically last about 10 years, but can be longer or shorter depending on each
Investors are not looking to be involved in the business they’ve invested in forever. Typically the investment life-cycle has an entry and exit strategy planned out in advance.
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Focus on young startups or high-growth companies
Take high risks at the hope of high reward
Participate in boards, management, structuring, and decision making
Plan for longer investment maturation
IndustRYIndustRY
VENTUREVENTURECAPITALCAPITAL
Invest capital
3
4
EARLY STAGE: capital provided to support growth in capabilities, encompasses start-ups that need support for product development and marketing, as well as first stages that need support for manufacturing and are testing, or beginning testing
LATER STAGE: capital provided for companies that are in business but possibly not turning a profit
A. THIRD STAGE: capital provided for expansions, improvements, and marketing
B. EXPANSION STAGE: encompasses second and third stages
C. MEZZANINE OR BRIDGE STAGE: capital provided to go public
As part of the fourth stage of the investment life-cycle, there are typical stages for the release of funds into the business.
IT’S ALL IN THE
NUMBERSNUMBERS
investopedia.com/terms/v/venturecapital.asp
sba.gov/content/venture-capital
securedocs.com/blog/2013/11/vc-fund-lifecycle/
investopedia.com/exam-guide/cfa-level-1/alternative-investments/venture-capital-investing-stages.asp
pwcmoneytree.com/CurrentQuarter/ByIndustry
pwc.com/en_US/us/health-industries/publications/assets/pwc-moneytree-venture-funding-q3-2013.pdf
cbinsights.com/blog/active-venture-capital-firms-h1-2014-silicon-valley-york-massachusetts/
entrepreneur.com/vc100
created by
SAN DIEGO
SEED STAGE: capital provided, usually directed toward early development, products, research, and/or developing a business plan
1
2FORMATIVE STAGE: This stage includes the seed and early stages
$596 million 45 deals
$533 million$563 million 34 deals34 deals
$491million 31 deals
$440 million 57 deals $427 million 40 deals
$325 million 28 deals $319 million 36 deals
$488 million
33 deals
$667 million 82 deals
The Firms Behindthe Money
Andreessen Horowitz1
Google Venture3
New Enterprise Associates2
Lightspeed Venture Partners5
General Catalyst Partners8
Battery Ventures9 Khosla Venture10
Kleiner Perkins Caufield & Byers4
Accel Partners6
First Round Capital7
Who is behind the funding? In 2013, the top 10 most active venture capital firms were.{
$6 Billion
$1.8 Billion
$1 Billion
$747 M
VENTURE CAPITAL FIRMSA group or partnership of investors
ANGEL INVESTORSIndividuals with high net worth looking for high returns on their investments; often former entrepreneurs
DC/METROPLEX