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Duncan Davidson - Series A crunch

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Series A crunch by Duncan Davidson at Venture Shift 2013

Series A crunch by Duncan Davidson at Venture Shift 2013

Published in: Economy & Finance, Business

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  • 1.  Vator Venture Shift, July 2013 Venture Outlook
  • 2.  Series A Crunch It’s real, it’s here!
  • 3. Seed Funding vs. Series A 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2009 2010 2011 2012 Seed Series A Source: Cbinsight as reported by Dan Primack #Deals This is how the data is reported …
  • 4. SeriesA Cliff 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2009 2010 2011 2012 2013 Seed Series A It matches until … Source: Cbinsight as reported by Dan Primack #Deals The Cliff This is the relevant comparison … Shift seed forward a year…
  • 5. The FaceplantTrainWreck! Web 2.0 Era IPOs FOMO chills Series A slows down Seed triage, bridgi ng Angels fear to tread “Faceplant” Accelerators cut back on class sizes Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013
  • 6. Down Rounds Spiked After Faceplant Source: Fenwick & West Faceplant Reaction (Ouch!)
  • 7. TraditionalVC Flat So Far in 2013
  • 8. Pitchbook Shows a Decided Downtrend
  • 9. SeriesA Flat So Far in 2013 Slight Uptick (222 in Q1, 246 in Q2) Seasonally Expected
  • 10. How Many Seed DealsWill Be Orphaned?
  • 11. “Getting to Series A” is Fading as the Goal Seed Follow-On Financing: Traditional VC A Round “Bullpen” Style Follow-On Seed Vintage 2010, in 2011 45% 12% Vintage 2011, in 2012 27% 23% The Crunch The Alternative Source: Fenwick & West 2012 VC Survey
  • 12.  VC Industry Major ongoing disruption “The era of the gentleman VC is over”
  • 13. VC Returns Sucked for a Decade
  • 14. VC Industry Consolidated 33 54 77 118 79 81 86 83 6826 61 138 282 136 155 175 148 122 0 5 20 143 27 44 51 36 42 0 100 200 300 400 500 600 1993 1995 1998 2000 2003 2005 2008 2010 2013 $100M+ $20-100M $10-20M Source: Thompson Reuters; Menlo Ventures Analysis Active Venture Funds (Active = Over $1m in at least 5 deals)
  • 15. “Lean” Disrupted theVenture Model Cloud storage, incubat ors Open source libraries, commoditized hardware Oracle license, large salaries, expensive machines
  • 16. Lean Enabled “Option-Buying”VCs  Old Model: “life cycle” VC  New Model: option buying  Smaller fund  Hyper-active pace  Small amounts at early stages  Fail fast – start something better!  Oversized reserves – double down on winners!
  • 17. And a Much Faster Investment Pace (40 per year vs. traditional venture 4-5) Option Buying Pace
  • 18. Smaller Deal Size Pushed BigVC Later Source: PwC Q3 survey as reported by Fenwick & West
  • 19. Opening the Door to Funding Alternatives  Accelerators  Super-Angels  Micro-VCs  Crowd-funding  Bullpen  Secondary Markets > 5000 deals per year
  • 20. Bullpen Formed as an Alternative to the SeriesA Bullpen saw disruption coming:  Bullpen GPs were active angels & LPs in seed funds like First Round Capital  The need: a seed follow-on round, below the A  The result: bypassing the A with a “shovel-in” round  Bullpen acknowledged as Series A Crunch thought leader
  • 21.  Prognosis New Wave of IPOs Coming! “FOMO = Fear Of Missing Out”
  • 22. Venture Returns Improving Index returns:  10 yr: 5.3%  3 yrs: 12.7% Median returns:  10 yr: (4.6%) Source: Cambridge Associates; NVCA
  • 23. Venture Liquidity Ratio Improving (Liquidity Ratio = Money Out vs. Money In) Source: Menlo Ventures
  • 24. AnotherTech Bubble is Brewing
  • 25. Tech M&AValues Increasing Year of Tech M&A Number Average Size ($MM) 2011 75 $512 2012 94 $717 Source: Tower Watson Quarterly Deal Performance Monitor Key Exits in 2012 • Kayak $1.8B • Kenexa $1.3B • Yammer $1.2B • Meraki $1.2B
  • 26. Tech IPOs Increased in Q2
  • 27. WSJ Headline:The NewWave of IPOs
  • 28. 2013 IPO Candidates
  • 29.  Venture Disruption The Revolution is Broad-Based
  • 30. VC Disruption is Part of the LargerTrend  The Revolution Will Not Be Categorized  Disruptive Deals Replace the Incumbents vs. Facebook vs. Hotels vs. PayPal
  • 31. What’s Next??  Vertically-oriented incubators  New instruments: capped converts, convertible equity  Secondary liquidity  Crowd-funding  … who knows what’s next … Its the easiest time ever to start a company … but one of the hardest times ever to scale a winner!