early stage trends march 2014
DESCRIPTION
A presentation on the state of early stage startup investing given to the Silicon Valley Innovation Center in March 2014.TRANSCRIPT
Early Stage Internet/Mobile Investing: Trends and Strategies
David ShenLaunch Capital
March 2014
TRENDSInternet/Mobile
Internet Seed Funding SF Bay Area
Source: http://www.cbinsights.com/blog/wp-content/uploads/2013/07/bayareainternet.jpg
Seed Deals, All Regions
Source: http://www.cbinsights.com/blog/trends/venture-capital-report-2013
Mobile Seed Funding SF Bay Area
Source: http://www.cbinsights.com/blog/wp-content/uploads/2013/07/bayareainternet.jpg
Mobile Deals, All Regions
Source: http://www.cbinsights.com/blog/trends/venture-capital-report-2013
Halo Report on Angel Investing Q3 2013
Source: http://www.svb.com/halo-report-q3-2013-infographic/
1H 2013 M&A Dynamics Online/Mobile
Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
1H 2013 M&A Online/Mobile
Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
1H 2013 M&A Online/Mobile
Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
Corporate M&A has fallen dramatically in 2013; Deal volume and prices are down to levels seen during recession
Source: NVCA 2013; BerkeryNoyes
Notes:
• M&A transactions in 2013 have dropped significantly both in number and value.• The mean M&A value in the
internet/mobile space was ~$23m in 1H ‘13 down from ~$35m in 1H ’12 & ~$51M in 1H ’11
• 61% of transactions were sub-$20M
• Continue to see two types of liquidity events in Silicon Valley and NYC (less so in Boston)• HR Acquisition: Large companies are
purchasing 2 and 3 person start-ups for the engineering talent
• Later stage VCs providing liquidity to the market via buyout of founder and early investor stock for top 5 venture backed companies
Q1 '09Q2 '0
9Q3 '0
9Q4 '0
9Q1 '1
0Q2 '1
0Q3 '1
0Q4 '1
0Q1 '1
1Q2 '1
1Q3 '1
1Q4 '1
1Q1 '1
2Q2 '1
2Q3 '1
2Q4 '1
2Q1 '1
3Q2 '1
30
20
40
60
80
100
120
140
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
M&A Transactions
M&A NOT Disclosed M&As DisclosedDisclosed $
OTHER TRENDSInternet/Mobile
Mobile Rising Aggressively vs. Desktop
Source: http://www.kpcb.com/insights/2013-internet-trends
China Mobile Internet Access
Source: http://www.kpcb.com/insights/2013-internet-trends
Rise of CrowdfundingJOBS Act
July 10, 2013SEC Chairperson Shapiro: New offering created called a 506(c) which allows companies to freely advertise fund raising to the general public.
More to come…
Crowdfunding Part II: Kickstarter/Indiegogo/Medstartr
Rise of the Accelerator
422 Accelerators in the US
Souce: http://www.f6s.com/programs/united-states?type=accelerator
Explosion of Startups
2009: 472
2010: 770
2011: 1065
2012: 1749
Source: https://www.cbinsights.com/blog/seed-investing-report
Series A Crunch
2009: 418
2010: 515
2011: 703
2012: 692
…leading to more bridge rounds or death of startups who can’t land their A… Number of Series A VCs has not increased; if anything it has decreased.
Source: https://www.cbinsights.com/blog/seed-investing-report
2013 Estimated “Series A Crunch”
20
Notes:
• Entire venture industry is now shifting due to this crunch. • Companies raising much larger seed
investment rounds to extend runway• Seed investors forced to support
companies longer• Seed investors forced to proactively
shut down underperforming cos.
Source: CrunchBase
Funding Gap 177 113 336 635 1681
2009 2010 2011 2012 2013 YTD0
500
1000
1500
2000
2500
3000
799 821
1205
1558
2510
622 708869 923 829
Pending Series A Funding Gap
Seed + Angel Series A
Explosion of (Digital) Seed Investors
• Groupon, Facebook, LinkedIn, Twitter go public.• Secondary markets allow early employees/founders in
private companies to exit with $millions in their pocket – circa 2011.
• Acquisitions of startups pay out to founders – they become angels.
• New VCs raise seed funds.• Private Equity/Investment Bankers enter the fray with
Wall Street money. • International investors!
Founders and Ideas• Smart, energetic founders are a commodity.
• Seasoned entrepreneurs are not.• Great ideas are a commodity.– It is too easy to come up with good/great ideas.
• Awesome ideas that no one else is working on are not.
Competition• Too easy and cheap to create software. – Already leading to the explosion of internet startups
• The search for “no competitors”– OK with old traditional, offline competitors.– Don’t want other startups competing with the same or
near idea.• Battle for attention -> Everyone is your competitor– Too many startups chasing after the same customers,
B2B or consumer. Battle for attention=too long to get to breakeven or next round.
Design/User Experience• Great design/UX required, but it is also a
commodity and too easily duplicated.– Assuming you can find and hire a great designer
• Advantage is usually short term only.
U.S. Early Stage Valuations 2006-2013
• 2006: $2-3M pre• 2007: $3-4.5M pre• 2008: $2-2.5M pre (economic crash)• 2009: first $5M capped note appears from YC• 2010: $6-8M capped notes• 2011: $8-12M capped notes• 2012: $6-8M capped notes• 2013: $5-6M average, upwards to $8M+ capped
notes
Fueled by New Investors• New angel investors replace those who slow
down– IPOs create new wealth– PE and Investment Bankers getting access
• New seed funds are being raised each year
• All new investors take what the market gives them – they have no history to draw upon
Early Stage Bubble• Bubble exists in early stage
only• Risk vs. reward does not
match– Estimate 1 in 20-40+ for hit,
most die• Early stage VC doesn’t have
great incentives with this kind of data
• Angels can still make some money if valuation is good enough but VERY hard to pick
• Acquihires are a great way to lose money
“No matter how much we want to go on and on (and on) about how cheap it is to start a company these days, actually building a sustainable company has never been more expensive. Venture studies show the time and money it takes to get public are longer and higher than ever before.”
“A rare defense of venture capital classic” - Sarah Lacy, PandoDaily
Source: http://pandodaily.com/2013/08/30/a-rare-defense-of-venture-capital-classic/
Funding round $ vs. Runway
• Too many raising not enough– Seed rounds going $1+M, upwards of $2M
• Acquiring customers take too long– Consumers deluged by apps; B2B sales cycles
taking longer – 12+ months• Takes 24-30 months to develop an idea. – Get to breakeven or metrics worthy of the next
round.
Super Sized Seed Rounds
Source: http://www.cbinsights.com/blog/trends/seed-venture-capital-super-sized
THANKS!
David [email protected]