NextGen VCs - After the Storm

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  • We picked these topics based on feedback from current and past students. Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data. Product definition b/c we are frequently creating a new product category. And pricing issues are always complex. We picked these topics based on feedback from current and past students. Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data. Product definition b/c we are frequently creating a new product category. And pricing issues are always complex. We picked these topics based on feedback from current and past students. Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data. Product definition b/c we are frequently creating a new product category. And pricing issues are always complex.

Transcript

  • 1. “ NextGen VCs – After the Storm” PolyTechnos Venture-Partners GmbH Third Annual Meeting “CEO Day” Berlin 06 November 2001 Kenneth P. Morse, Senior Lecturer and Managing Director MIT Entrepreneurship Center
  • 2. Desired Outcomes of this Presentation
    • Provide a basis for a stimulating discussion
    • Respond to your questions
    • End on time, so we can enjoy our luncheon (and networking).
    I want to express special thanks to Jesse Reyes, Venture Economics and John Taylor, NVCA for their permission to use their excellent data, analysis, and presentations from VentureXpert ™, the Venture Capital Institute, and the DRI-WEFA study which were just released in the USA.
  • 3.
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 4. MIT Entrepreneurship Center Mission To train and develop leaders who will make high tech ventures successful MIT President Charles M. Vest, July 1996 “ I want you to be the premier global center for entrepreneurship, and to be recognized as such.” “ We must not only be the best. We must also serve as a model for others and ensure that, together, we all make a significant global impact in this vital field.”
  • 5. Why Focus on High Tech?
    • Continuous creation of new, technology-based enterprises enables great leaps forward.
    • Rising living standards underpin democracy.
    • At MIT, we believe our distinctive competence is forging innovations in Science, Engineering, & Management to achieve revolutions, not evolution.
  • 6. To Compete Successfully…
    • University of Cambridge (UK)
      • The Cambridge Network
      • CEC
    • Ireland (3 universities)
    • Taiwan (3 universities)
    • Germany?
    “ MIT startups must attack global markets.” To teach global high tech entrepreneurship effectively, we need a network of partners:
  • 7.
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 8. The Inevitable Business Cycle “ In times of great commercial prosperity there has been a tendency [toward] over-speculation on several occasions. The success of one project generally produces others of a similar kind. Popular imitativeness will … drag a community too anxious for profits into an abyss …” - Charles Mackay, 1841
  • 9. The Impact of US Venture Capital
    • Venture firms now account for:
      • 7.9 million employees
      • Annual revenues of $1.56 trillion,
    • These figures represent:
      • 6.1% of US payroll
      • 14.0% of US GDP
      • 7.9% of US company revenue.
    DRI-WEFA Study – Commissioned by NVCA: Source: DRI-WEFA (analysis as of 8/2001)
  • 10. Key Findings - Preliminary
    • For every dollar invested in 1970-1999, there was $9 in revenue during 2000
    • For every $21,627 of venture capital investment in 1970-1999, there was one more job in the year 2000
    • Not bad for an industry which was:
      • <1.0% in 1970-1995
      • 2.1% in past 5 years
    Source: DRI-WEFA (analysis as of 8/2001)
  • 11. The VC Industry has Grown Dramatically in the Past Few Years Source: VentureXpert ™ Database by VE & NVCA
  • 12. Venture Capital Fundraising Continues at a Strong Pace Source: VentureXpert ™ Database by VE & NVCA This does not include money available for investment by Corporate Venture groups.
  • 13. The US Venture Industry Has Grown Source: 2000 NVCA Yearbook
  • 14. How Big is Big in a Venture Fund? Have VCs Abandoned Seed?
    • 2000 Funds by Size: $0-$25M 100 $25.1M-50M 80 $50.1M-$250M 213 $250.1M+ 106
    Source: VentureXpert™ Database by VE & NVCA
  • 15. Corporate Venture Capital Groups Have Become Very Involved Source: VentureXpert ™ Database by VE & NVCA
  • 16. Corporate VC Groups are Involved in more than ¼ of all Deals Source: VentureXpert ™ Database by VE & NVCA
  • 17. Recent Quarters Portend a Return to Traditional Activity Levels Source: VentureXpert ™ Database by VE & NVCA
  • 18. 2000 IPOs Edge Out 1999 Record Levels Despite a Bouncy Road Source: VentureXpert ™ Database by VE & NVCA
  • 19. Acquisitions are an Increasingly Important Exit Strategy Source: VentureXpert ™ Database by VE & NVCA
  • 20. Why Invest If You Can’t Find the Exit Door? Source: VentureXpert ™ Database by VE & NVCA IPO Markets are Dormant
  • 21. These are Increasingly Important Acquisition Markets Have Slowed Down Too
    • The “currency” of the average NASDAQ company has lost 50.4% in the past year.
    • Most acquirers of venture backed companies are publicly-traded high technology companies (often themselves venture backed).
  • 22. Average Early and Seed Stage Round Sizes Have Crested Source: VentureXpert ™ Database by VE & NVCA
  • 23. Venture Capitalists Continue to Fund Early and Seed Stage Companies – Future Pipeline Source: VentureXpert ™ Database by VE & NVCA
  • 24. First Venture Rounds into Internet-Related Companies Continue Source: VentureXpert ™ Database by VE & NVCA Although at a Much-Reduced Level from 2000
  • 25. Scaling the Industry: Growth in VC Principals Has Not Kept Up With Growing Fund Sizes Source: VentureXpert ™ Database by VE & NVCA
  • 26. Venture Principals are Busier than Ever! Source: VentureXpert™ Database by VE & NVCA
  • 27. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 28. US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns) Source: Venture Economics
  • 29. US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns) Source: Venture Economics
  • 30. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 31. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 32. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 33. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 34. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 35. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 36. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 37. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 38. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 39. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 40. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 41. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 42. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 43. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 44. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 45. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 46. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 47. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 48. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 49. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 50. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 51. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 52. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 53. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 54. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 55. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 56. Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • 57. Five Year Performance Trends US Venture vs Buyouts Source: Venture Economics
  • 58. US Private Equity Performance Benchmarks US Limited Partnerships Formed 1969-1999 Investment Horizon Returns Net to Investors as of 9/30/2000 Source: Venture Economics
  • 59. US Limited Partnerships Formed 1969-2000 Investment Horizon Returns Net to Investors as of 12/31/2000 Source: Venture Economics
  • 60. Companies Receiving First Venture Round (Series A) During Last Downturn (1/1990-6/1992)
    • Artisoft
    • Starbucks
    • Intuit (FKA ChipSoft)
    • McAfee
    • Xpedite
    • Palm Computing
    • Cutter & Buck
    • RF Micro Devices
    • eFax.com
    • Shiva Corporation
    • Wind River Systems
    • FTP Software
    • CheckFree
    • SPSS
  • 61.
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 62. Current Scene: B2B = Back to Basics
    • The Laws of Gravity Were Never Repealed
    • Entrepreneurs need to have outstanding:
      • Team
      • Technology
      • Value Proposition
      • Market
      • Customers
    • Applies to VCs as well…
  • 63. Entrepreneurs: Building Your Company
    • Need an “A” Team – “3K” experience
    • Serious Technology – sustainable advantage
      • Solve an important, valuable problem…
      • For clients who have money …
      • Who want to pay well…
      • With a short sales cycle…
      • And will buy more, soon …
    YOUR VALUE PROPOSITION MUST BE COMPELLING, QUANTIFIABLE, PROVEABLE, REFERENCEABLE, AND EASILY EXPLAINABLE…
  • 64. Our Message to Entrepreneurs: – Selecting Your Financial Partners
    • Seek True Value Added – “Blue” Money
        • Operating Experience
        • Rolodex/Network
        • Awesome Portfolio (in your space)
        • Cool Limiteds (in your space)
        • Deep pockets / courage to stay the course
    • Keep Realistic Expectations
        • Time to Market
        • Revenue growth
        • Valuations
  • 65. Entrepreneurs’ Funding: Many Options
    • Your Personal Funds
    • “ 3F” – Friends, Family, and Fools
    • Personal Credit Cards and Other Borrowings
    • Business Angels
    • Venture Capital
    • Corporate Direct Investment
    • Venture Leasing
    • Mezzanine Financing
    • Merger and Acquisition
    • Initial Public Offering
    • Secondary/Follow-on Public Offering
    • Private Placements – Debt & Equity
    • Buyout/Acquisition Financing
    • Corporate Debt
  • 66.
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 67. Future Outlook: After the Shakeout
    • The superficial VC gamblers are dying or dead.
    • A line of bull + .ppt is no longer enough. DAD >> MBBB
    • The number of MIT spin-offs and $50K teams have not decreased significantly.
    • Serious entrepreneurs, angels, and VCs are quietly and carefully moving forward.
    • This is a great time to be starting a company:
    • Expectations and time horizons are realistic.
    • Recruiting top talent is easier.
    • Office space is available, at more reasonable prices.