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Presentation on the Next Generation of VCs by Prof Ken Morse of the MIT Sloan School

Presentation on the Next Generation of VCs by Prof Ken Morse of the MIT Sloan School

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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.

Ken Morse Nextgen Vcs Ken Morse Nextgen Vcs Presentation Transcript

  • “ 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
  • 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.
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 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.”
  • 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.
  • 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:
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 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
  • 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)
  • 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)
  • The VC Industry has Grown Dramatically in the Past Few Years Source: VentureXpert ™ Database by VE & NVCA
  • 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.
  • The US Venture Industry Has Grown Source: 2000 NVCA Yearbook
  • 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
  • Corporate Venture Capital Groups Have Become Very Involved Source: VentureXpert ™ Database by VE & NVCA
  • Corporate VC Groups are Involved in more than ¼ of all Deals Source: VentureXpert ™ Database by VE & NVCA
  • Recent Quarters Portend a Return to Traditional Activity Levels Source: VentureXpert ™ Database by VE & NVCA
  • 2000 IPOs Edge Out 1999 Record Levels Despite a Bouncy Road Source: VentureXpert ™ Database by VE & NVCA
  • Acquisitions are an Increasingly Important Exit Strategy Source: VentureXpert ™ Database by VE & NVCA
  • Why Invest If You Can’t Find the Exit Door? Source: VentureXpert ™ Database by VE & NVCA IPO Markets are Dormant
  • 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).
  • Average Early and Seed Stage Round Sizes Have Crested Source: VentureXpert ™ Database by VE & NVCA
  • Venture Capitalists Continue to Fund Early and Seed Stage Companies – Future Pipeline Source: VentureXpert ™ Database by VE & NVCA
  • First Venture Rounds into Internet-Related Companies Continue Source: VentureXpert ™ Database by VE & NVCA Although at a Much-Reduced Level from 2000
  • Scaling the Industry: Growth in VC Principals Has Not Kept Up With Growing Fund Sizes Source: VentureXpert ™ Database by VE & NVCA
  • Venture Principals are Busier than Ever! Source: VentureXpert™ Database by VE & NVCA
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns) Source: Venture Economics
  • US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns) Source: Venture Economics
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Source: Venture Economics US Venture Capital Partnership Returns Versus Public Market Returns Funds Formed 1969-2000 (quarterly returns)
  • Five Year Performance Trends US Venture vs Buyouts Source: Venture Economics
  • 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
  • US Limited Partnerships Formed 1969-2000 Investment Horizon Returns Net to Investors as of 12/31/2000 Source: Venture Economics
  • 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
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 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…
  • 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…
  • 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
  • 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
    • Our Mission & Focus
    • Past Business and Venture Cycles
    • Current Scene: Trends in Start-ups and VC
    • Future Outlook
    Proposed Outline
  • 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.