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  • There has been a tremendous amount of money committed to venture capital over the past 5 and especially the past 3 years. And to put this into perspective, the amount committed to US VC’s in 2000 was ~= to the amount from 1983-1998 combined. As well the first half of ’01 is tracking with ’00, but…….
  • …if we look at the Q to Q amounts, we can see that commitment levels are falling, which is to be expected given all other conditions. *Interestingly there is a gap between the amount committed to venture funds and the actual amount that is being invested, and this gap has widened drastically over the past three quarters by over $13B. So there is truly a stockpiling of B’s, for which the investor know will be needed.??? Cash King?
  • It used to be that a $250M fund was considered very large, and in fact, many large venture firms did not raise funds this large until the late ’90, including firms such as, Oak, Polaris, and ARCH, among others who are active here in the NW. And impart, the proliferation of these mega- funds fueled the investment levels and trends that we have seen over the last 3 years created.
  • Well, the bubble is over, and that is truly what it was from mid ’99 to early ’01. *I think what is important to see here, is that even if the % decline continues @ the same rate, we will still see about $30B invest this year, easily making 2001 the 3 rd largest year for VC investment.
  • And speaking of this Q over Q rate of decline, we can see here that it is in fact decreasing…and is currently showing signs that it might be coming close to a bottom. *It is however, the 5 th straight Q to Q decline, but may be close to a bottom.
  • As you can see here, almost all IT sectors posted declines relative to its First Q level. The areas of modest increases included Elec/Comp HW & the Health Sciences. I think it is also important to note that there was a $2.2B decrease in investments from 1Q to 2Q, the combined decrease from CBS, Software, and Communications =$2.2B, making up the majority of this decline.
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    1. 1. The State of Venture Capital <ul><li>September 22, 2001 </li></ul><ul><li>John Gabbert </li></ul><ul><li>Director of Research </li></ul><ul><li>VentureOne Corporation </li></ul>
    2. 2. VentureOne Research <ul><li>VentureOne tracks companies from their initial round of </li></ul><ul><li>financing until they achieve liquidity, become profitable with </li></ul><ul><li>no plans for future financing, or go out of business. </li></ul><ul><li>All major VC firms surveyed quarterly </li></ul><ul><li>All reported financings verified </li></ul><ul><li>All active private companies in database contacted regularly </li></ul><ul><li>Thorough secondary research conducted continuously </li></ul><ul><li>Database updated in real time </li></ul>
    3. 3. Three Key Elements for a Robust Venture Industry <ul><li>Fundraising </li></ul><ul><li>Investment </li></ul><ul><li>Liquidity </li></ul>
    4. 4. VC Fundraising Still Healthy in 1H’01 Commitments to Venture Capital Funds ($B)
    5. 5. But Momentum is Slowing Commitments to Venture Capital Funds ($B)
    6. 6. Majority of VC $ Are Now in Large Funds VC Funds Under Management by Size ($M)
    7. 7. Fundraising Summary <ul><li>New venture capital commitments fell in 2Q01; however, total YTD fundraising is still well above the norm. </li></ul><ul><li>Fundraising becoming more difficult, especially for newer or unproven funds. </li></ul><ul><li>Over half of VC dollars are now in funds greater than $500 million. </li></ul>
    8. 8. Equity Investment
    9. 9. 2Q’01 Investment Pace Returns to ’99 Levels Equity into Venture-Backed Companies ($B)
    10. 10. Overall Investment Drops 21% from 1Q’01 to 2Q’01 Equity into Venture-Backed Companies
    11. 11. Median Amount Invested by VCs Remains Flat Across the Board Median Amount Raised by Round Class ($M)
    12. 12. Investments by Industry Sector 2Q01 (20%) (43%) (38%) (27%) 8.5% (16%) (27%) 33% 65% 125% (39%) 11% (63%) Dollars (M) and Percent Change from 1Q01
    13. 13. Other Internet Sectors’ Loss Is Software’s Gain Equity Investment by Internet Dimension
    14. 14. VCs Focus on Existing Portfolio Companies in 2Q’01 Amount Invested by Round Class ($B)
    15. 15. Equity for Venture-backed Companies Comes From Multiple Sources Investment by Financing Type
    16. 16. Corporate Investment Drops to Less Than 1/10 th of Peak Corporate Equity into Venture-Backed Companies
    17. 17. Valuations
    18. 18. Median Pre-money Valuations Fall Below 1999 Levels in 1H’01 Median Pre-Money Valuation by Year ($M)
    19. 19. Valuations’ Downward Trend Becomes More Gradual Median Pre-Money Valuation ($M)
    20. 20. Valuations Have Diminished Across All Financing Stages Median Pre-Money Valuations by Round Class ($M)
    21. 21. IT Valuations Stabilize in 2Q’01 Median Pre-Money Valuations by Industry ($M)
    22. 22. Equity Financing Summary <ul><li>Equity financing into venture-backed companies peaked in 1Q 2000, and has been falling steadily since. </li></ul><ul><li>2Q’01 saw a 21% drop vs. 1q’01; However, this decline is more gradual than the 41% decrease in the previous quarter. </li></ul><ul><li>Overall equity investment is still almost twice its level two years ago. </li></ul><ul><li>Valuations and median round sizes are falling. </li></ul><ul><li>Early-stage venture financing has fallen more rapidly than later-stage. </li></ul>
    23. 23. Liquidity
    24. 24. Venture-backed Liquidity Shifts Dramatically Toward M&A’s M & As vs. IPOs
    25. 25. M&A Transactions Decline Gradually, While Amount Paid Plummets Transactions and Amount Paid in M & As
    26. 26. IPO Dearth Continues in 2Q’01 Deals and Amount Raised Through IPOs
    27. 27. Pre-IPO Valuations Begin to Decline Median Pre-IPO Valuations ($M)
    28. 28. Non-Internet IPOs Steadily Reclaim the Market IPOs, Internet vs. Non-Internet
    29. 29. Liquidity Summary <ul><li>The IPO and M&A markets for venture-backed companies continued their dramatic declines from the record levels of 1999 and early 2000. </li></ul><ul><li>With only 4 initial public offerings, IPO volume in 2Q’01 was at its lowest in years. </li></ul><ul><li>While M&A volume fell slightly in 2Q, the amount paid in these transactions dropped off considerably. </li></ul>
    30. 30. Conclusions and Implications <ul><li>The “bubble” is over. Fear reigns. </li></ul><ul><ul><li>The courageous will be rewarded, the timid and the stupid will suffer. </li></ul></ul><ul><li>VC fundraising is declining, but continues to exceed VC investment by billions each quarter. </li></ul><ul><ul><li>Once again, cash is king. </li></ul></ul><ul><li>Equity investment continues to declining, but rate of decline appears to be slowing down. </li></ul><ul><ul><li>The bottom appears to be near (3Q of 4Q). </li></ul></ul><ul><li>VCs again dominate investment. </li></ul><ul><ul><li>VCs will profit greatly from others’ exits. </li></ul></ul><ul><li>Investment into seed and 1st round companies plummets. </li></ul><ul><ul><li>Today, series B companies are like 1 st rounds, but with battle scars. </li></ul></ul><ul><li>Liquidity is very poor – virtually no IPOs, or m&as at much lower valuations. </li></ul><ul><ul><li>Good time to build strong companies for a better market. </li></ul></ul>
    31. 31. Perspective <ul><li>Venture capital will be difficult to raise in 2001, but… </li></ul><ul><li>Venture capital has always been difficult to raise (except for 1999-2000). </li></ul><ul><li>There is considerable venture capital available to invest. </li></ul><ul><li>All essential resources other than capital will be easier to obtain in 2001: talented people, real estate, professional services, investor time and attention, etc. </li></ul><ul><li>Tight capital will mean less competition and better businesses. </li></ul><ul><li>Valuations will drop, considerably. </li></ul><ul><li>All of this is good for the best VCs and entrepreneurs (and the public). </li></ul>
    32. 32. More Information <ul><li>For a copy of this presentation, contact or call +1 (415) 538-2658. </li></ul><ul><li>Email for: </li></ul><ul><ul><li>VentureSource: instant access to venture capital intelligence. </li></ul></ul><ul><ul><li>VentureOne publications: VentureEdge (quarterly), venture capital industry report (annual), and the venture capital sourcebook. </li></ul></ul><ul><ul><li>Custom report services: comparable valuation reports and specialized queries. </li></ul></ul>