today’s venture capital landscape bobby franklin
TRANSCRIPT
Today’s Venture Capital LandscapeBobby Franklin, President & CEO, NVCA
Agenda
• Introduction to National Venture Capital Association (NVCA)
• 6 US VC Trends to Watch
• What’s Happening in Texas
• Public Policies Affecting the Startup Ecosystem
The National Venture Capital Association (NVCA) empowers the next generation of American
companies that will fuel the economy of tomorrow.
As the voice of the U.S. venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem
Who We Are
6 US Venture Capital Trends to Watch
5
Though exit activity dropped in 2H, 2019 will be remembered as a milestone year for VC-backed exits
Annual US VC Exit Activity
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
$22 $4
1
$67
$125
$72
$111
$76
$73
$98
$130
$256
479
707 740
871 905
1,0811,030
906 9281,015 882
0
200
400
600
800
1000
1200
$0
$50
$100
$150
$200
$250
$300
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Exit value ($B) Exit count
$52
$143
$43
$19
213
272
223
174
Q1 Q2 Q3 Q4
2019 Quarterly Exit Activity
1
6
Ample dry powder + nontraditional investors pushed dollars into startups to $135B+ for 2nd straight year
US VC Investment Activity
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
$27
$31
$46
$41
$48
$72
$84
$78
$87
$140
$137
4,535
5,444
6,806
7,937
9,387
10,684 11,014
9,61210,326 10,542 10,777
0
2,000
4,000
6,000
8,000
10,000
12,000
$0
$20
$40
$60
$80
$100
$120
$140
$160
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Deal value ($B) Deal count
2
7
# of deals plateaus at all stages; late stage $ has nearly doubled, fueled by $100M+ rounds (“mega deals”)
VC Investment by Stage(# of deals)
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
3
5,743
4,736 4,9214,541 4,556
3,2403,003
3,3703,722 3,624
2,031 1,873 2,0352,279
2,597
2015 2016 2017 2018 2019
Angel & Seed Early VC Later VC
$6.8 $6.4 $7.4 $9.2 $9.1
$26 $25$31
$43 $42
$51$46 $49
$88 $85
2015 2016 2017 2018 2019
Angel & Seed Early VC Later VC
VC Investment by Stage($B)
$22
$20
$21
$52
$49
87
56
85
164181
0
20
40
60
80
100
120
140
160
180
200
$0
$10
$20
$30
$40
$50
$60
2015 2016 2017 2018 2019
Deal value ($B) Deal count
Late Stage Mega Deals ($100M+)
8
Sectors to watch – newly created sectors related to health, security & data are changing our lives
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
4
$5 $4 $6 $7 $8
599 567
658 654 659
500
550
600
650
700
$0
$2
$4
$6
$8
$10
2015 2016 2017 2018 2019
HealthTech Investment$4 $3 $4 $4 $5
291291
322
309311
270
280
290
300
310
320
330
$0
$1
$2
$3
$4
$5
$6
2015 2016 2017 2018 2019
Cybersecurity Investment
$11
$9 $13
$19
$17
706645
777831 866
0
200
400
600
800
1,000
$0
$5
$10
$15
$20
2015 2016 2017 2018 2019
Pharma & Biotech Investment
$7 $13
$9 $18
$19
592
7831,102
1,347 1,367
0
500
1,000
1,500
$0
$5
$10
$15
$20
2015 2016 2017 2018 2019
Artificial Intelligence & Machine Learning Investment
9
Looking ahead, investors flush with capital to put to work in startups in 2020 and beyond
US VC Fundraising Activity
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
$13
$19
$23
$25
$20
$35
$37
$42
$34
$58
$46
121
150 151
204216
294308
321
276299
259
0
50
100
150
200
250
300
350
$0
$10
$20
$30
$40
$50
$60
$70
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Capital raised ($B) Fund count
5
10
Mega deals/unicorns on coasts may steal headlines but strong VC activity outside traditional hubs
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
6
64% 65% 66% 67%70%
74%77%
74%79%
74%
36% 35% 34% 33%30%
26%23%
26%21%
26%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
CA+NY+MA
Rest of US
53% 54% 54% 54% 54% 54% 54% 54% 55%53%
47% 46% 46% 46% 46% 46% 46% 46% 45%47%
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US VC Investment in CA+NY+MA vs. Rest of US ($B)
US VC Investment in CA+NY+MA vs. Rest of US (# of deals)
What’s Happening In Texas
12
Texas ranks 5th in VC $ & 4th by VC deal count in US
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
46%
49%
49%
47% 54
%
53%
56%
50% 60
%
47%
6%
7% 7% 9%
9% 12% 12
%
13%
11%
20%12
% 9% 11%
11% 7% 10
% 9%
11%
9%
8%
4.7% 5.4% 4.9% 6.1% 3.6%3.0%
2.4%2.6%
2.2%2.7%
28%
27%
25%
24%
23%
20%
18%
21% 17
%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rest of US
Washington
Texas
Massachusetts
New York
California
38%
35%
36%
36%
35%
36%
35%
36%
36%
36%
34%
8%
9% 10%
11%
11%
12%
12%
12%
12%
12%
12%
9% 9% 8% 7% 7% 6% 7% 7% 7% 7%
7%
5.4% 5.3% 5.1% 5.1% 5.8% 5.2% 5.4% 5.7% 5.0% 4.9% 5.2%
37%
38%
38%
38%
37%
38%
37%
37%
37%
37%
38%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US VC Investment by State ($B) US VC Investment by State (# of deals)
13
TX VC $ hit record high in 2019, uptick in VC deal count after 3 years of decline
Texas VC Investment Activity
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
$1.3
$1.5
$2.5
$2.0
$2.9
$2.6
$2.5
$1.9
$2.3
$3.1
$3.7
243290
344407
541 559593
544516 520
554
0
100
200
300
400
500
600
700
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Deal value ($B) Deal count
14
IT, Healthcare & B2C startups lead TX VC activity
Texas VC Investment by Sector (2015-2019)
Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19
43%
21%
15%
14% 3%3%
1% IT40%
Healthcare19%
B2C19%
B2B16%
Financial Services
3%
Energy3%
Materials & Resources
1%
% of deal count
% of capital
invested
Largest Industry Groups by VC $ in Texas (2015-2019)
Top 2019 Investment in Group
Group $ Rank Industry Group Sector $M
# of deals Company Code City
Size ($m)
1 Software IT $4,848 1,003 SparkCognition Database Software
Austin $100
2 Pharma & Biotech Healthcare $1,242 151 Peloton Therapeutics
Pharma Dallas $150
3 Commercial Services
B2B $1,181 245 RigUp Media & Info. Services
Austin $300
4 Healthcare Devices & Supplies
Healthcare $656 164 EverlyWell Other Devices & Supplies
Austin $30
5 Consumer Non-Durables
B2C $545 151 Siete Family Foods
Food Products Austin $90
Public Policies Affecting the Startup Ecosystem
Final CFIUS rules include key NVCA wins• Final FIRRMA go into effect February 13;
basic structure remains the same, but helpful detail on key issues
• Big improvement is narrowing of jurisdiction over companies with ‘sensitive personal data’; new from pilot program
• Examples of “material nonpublic technical information” will be useful on direct investment side (e.g. “milestones”) and for managing foreign LPs
• New ‘principal place of business’ definition will help funds organized outside the laws of the U.S.
• Excepted investor concept limited to Canada, U.K., and Australia but could widen
Volcker Rule ReformNVCA proposal to regulators:
• Allow bank investment into venture capital funds• Two regulatory paths to achieve proposal
• Exempt VC• Regulatory parity
Immigration Policy Isn’t Working for Startups• NVCA continues to lead efforts to
create a Startup Visa so the world’s best entrepreneurs can launch high-growth companies in the U.S.
• The bipartisan Startup Act has been introduced again this year and NVCA is spearheading efforts to build support
• NVCA leads support for the International Entrepreneur Rule and sued the Trump Administration when it worked to undo the rule before it got off the ground; fight continues in 2020
VC Definition Modernization (RIA)
• Provide relief for 20% “non-qualifying investment” bucket• Investments into EGCs (including
secondary) = qualifying • Fund of funds investments into other VC
funds = qualifying • Initial Coin Offering = qualifying
• Modify leverage limitations to allow for extended leverage timelines for indebtedness incurred in connection with capital calls
Drug Pricing: Politics Could Motivate Activity• Our role in this debate is educating
policymakers on the crucial role venture capitalists play in new drug discovery
• Political attacks on big drug companies could harm high-growth startups
• Our July 2018 comments shared data on our industry’s impact on medical innovation and stressed sensitivity toward how drug pricing reforms might influence early-stage investment in medicine
Blockchain Technology • VCs make some of the
most critical technology investment decisions in the U.S. economy
• Regulatory certainty for fully functional blockchain networks is critical to determining the full promise of the technology
Techlash (and it’s implication for startups)• Big Tech is on its heels in DC as
tech backlash has become bipartisan headache
• Emboldened by the administration, Republicans no longer giving tech the benefit of the doubt they usually give to businesses
• Not to be outdone by the administration, Democrats stepping up historical criticism of data use and privacy concerns
Tax PolicyAt a time of increasing policy uncertainty, NVCA advocating for tax policy that encourages new company formation
Harmful Tax Proposals:• Taxation of Unrealized Gains &
Capital Gains Policy• Carried Interest
Helpful Tax Proposals:• R&D Credit Payroll Tax Offset• Qualified Small Business Tax
Rules (QSBS)• Startup NOL Safe Harbor (Section
382)
Thank You
Learn more at nvca.org