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NATIONAL                                                                                                     VENTURE      ...
March 2011Dear Reader:Never before in the nation’s history have financial mechanisms and markets come undermore scrutiny b...
NVCA BOARD OF DIRECTORS 2010-2011                                 Executive CommitteeKate Mitchell                        ...
2011National Venture Capital Association                                   Yearbook      For the National Venture Capital ...
National Venture Capital Association 2011 YearbookNational Venture Capital Association                    Thomson Reuters1...
Table of ContentsWhat is Venture Capital? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
This page is intentionally left blank.6                                            Thomson Reuters
What is Venture Capital?Venture capital has enabled the United States to sup-port its entrepreneurial talent and appetite ...
Many technologies currently under development byventure capital firms are truly disruptive technologiesthat do not lend th...
Executive SummaryDuring 2010, the industry continued to right-size and find equilibrium. Capital under management, headcou...
National Venture Capital Associationtrend. Industry headcount continues to decrease, end-     and still realize a successf...
2011 NVCA Yearbook                                                                                        Figure 2.0      ...
National Venture Capital Association                                                                    Figure 4.0        ...
2011 NVCA Yearbook                                                            Figure 7.0                                  ...
National Venture Capital Association                                                                    Figure 9.0        ...
Industry ResourcesVenture capital under management in the United States by the end of 2010 decreased only slightly from 20...
National Venture Capital Association                                                                                      ...
2011 NVCA Yearbook                                                                     Figure 1.04                        ...
National Venture Capital Association                                                                   Figure 1.07        ...
Capital CommitmentsNew commitments to venture capital funds in the United States again decreased in 2010 to $12.3 billion ...
National Venture Capital Association                                                                                 Figur...
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  1. 1. NATIONAL VENTURE CAPITAL ASSOCIATION YEARBOOK 2011 NATIONAL VENTURE CAPITAL ASSOCIATION YEARBOOK 2011 3 Times Square 1655 Fort Myer Drive PREPARED BY 18th Floor Suite 850 INCLUDING STATISTICS FROM THE New York, NY 10036 Arlington, VA 22209 PricewaterhouseCoopers/National Venture Capital Associationwww.thomsonreuters.com www.nvca.org MoneyTree™ Report based on data from Thomson Reuters
  2. 2. March 2011Dear Reader:Never before in the nation’s history have financial mechanisms and markets come undermore scrutiny by Congress, the regulators, the media, and the general public. Despite theturmoil in many sectors of the economy, the closer look reaffirmed venture capital as akey driver of economic growth. The nation continues to look to the entrepreneurial sectorfor job creation, economic development, better healthcare, cleaner technology, and afaster, better, and more secure internet.The statistics gathered and tracked by Thomson Reuters for ThomsonONE.com(formerly VentureXpert) and this Yearbook are essential to enabling analysis of venture capi-tal by policy think tanks and economists and for use by government officials and otherdecision makers. For example, recent analysis of Thomson Reuters data by IHS GlobalInsight shows that while venture capital investment represents 0.2% of US GDP the rev- ,enue of companies created by the industry represented 21% of GDP in 2008. We are inthe process of revising these numbers based on recent results.On behalf of the National Venture Capital Association board of directors and staff, we arepleased to present you with the latest statistics that describe the activity of the venturecapital industry in the United States. These statistics reflect yet another all-time high levelof survey participation by venture capital practitioners. This support has allowed us toresponsibly bring transparency to a part of the economy most people are aware of but fewreally understand. Your comments are always welcome at research@nvca.org.NVCA believes that it is more important than ever to effectively tell the story of venturecapital, differentiate it from other forms of alternative assets, and explain what’s needed tocontinue creating great, leading-edge companies. We believe that a strong venture capitalindustry is essential to America’s future.Very truly yours,Diana Frazier Mark G. Heesen John S. TaylorFLAG Capital Management NVCA President NVCA VP ResearchNVCA Director & Chairman,NVCA Research Committee
  3. 3. NVCA BOARD OF DIRECTORS 2010-2011 Executive CommitteeKate Mitchell Paul MaederChairman Chairman-ElectScale Venture Partners Highland Capital PartnersE. Rogers Novak Ray RothrockTreasurer Treasurer-ElectNovak Biddle Venture Partners Venrock AssociatesJack LasersohnRotating At-LargeThe Vertical Group Research CommitteeDiana Frazier Mike ElliottResearch Chairman Noro-Moseley PartnersFLAG Capital Management, LLCBruce Evans Stephen HolmesSummit Partners InterWest Partners Board Members At-LargeIra Ehrenpreis James FlemingTechnology Partners Columbia CapitalNorm Fogelsong Michael GreeleyInstitutional Venture Partners Flybridge Capital PartnersJosh Green Jim Hale, IIIMohr, Davidow Ventures FTV CapitalDeepak Kamra Pascal LevensohnCanaan Partners Levensohn Venture PartnersTrevor Loy James MarverFlywheel Ventures Vantage Point PartnersJason Mendelson Sherrill NeffFoundry Group Quaker BioVenturesRobert Nelsen David PrendARCH Venture Partners RockPort Capital PartnersTheresia Ranzetta Jonathan RootAccel Partners U.S. Venture PartnersScott SandellNew Enterprise Associates2 Thomson Reuters
  4. 4. 2011National Venture Capital Association Yearbook For the National Venture Capital Association Prepared by Thomson Reuters Copyright © 2011 Thomson Reuters The information presented in this report has been gathered with the utmost care from sources believed to be reliable, but is not guaranteed. Thomson Reuters disclaims any liability including incidental or consequential damages arising from errors or omissions in this report.Thomson Reuters 3
  5. 5. National Venture Capital Association 2011 YearbookNational Venture Capital Association Thomson Reuters1655 Fort Myer Drive, Suite 850 3 Times Square, 18th FloorArlington, Virginia 22209-3114 New York, NY 10036Telephone: 703-524-2549 Telephone: 646-223-4431Telephone: 703-524-3940 Fax: 646-223-4470www.nvca.org www.thomsonreuters.comPresident Vice President, Head of Private Equity and DesktopMark G. Heesen Products Elizabeth BensonVice President of ResearchJohn S. Taylor Vice President, Deals and Private Equity Operations Shariq KajijiSenior Vice PresidentMolly M. Myers Global Business Manager – Private Equity Jim BeecherVice President of Federal Policy & Political AdvocacyJennifer Connell Dowling Editor-in-Charge David TollVice President of Strategic Affairs & Public OutreachEmily Mendell Global Private Equity Operations Manager Alex TanVice President of Membership & Member Firm Liaison Press ManagementJanice Mawson Matthew TooleDirector of Federal Policy & Political Advocacy Product ManagerEmily A. Baker Lori Ann SilvaDirector of Marketing Content SpecialistJeanne Lazarus Metzger Paul PantallaDirector of Federal Life Science Policy Senior AnalystKelly Slone Francis BasePublic Policy Manager Research EditorSumi Singh Eamon BeltranMembership Coordinator & Database Administrator Senior Art DirectorTerry Samm David CookeAccounting Manager Sales Manager – Publications (Buyouts, VCJ, peHUB)Beverley Badley Greg Winterton (646-223-6787)Manager of Administration and Meetings ThomsonONE.com Sales:Allyson Chappell Dave Sharma (646-223-4048)Administrative AssistantGwendolyn TaylorResearch LabMavis Moulterd4 Thomson Reuters
  6. 6. Table of ContentsWhat is Venture Capital? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Industry Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Capital Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 10 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Portfolio Company Post-Money Valuations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Exits: IPOs and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 10Industry Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 15Capital Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Investments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Portfolio Company Valuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Exits: IPOs and Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49Appendix A: Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Appendix B: MoneyTree Report Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73Appendix C: MoneyTree Geographical Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75Appendix D: Industry Codes (VEICs). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77Appendix E: Industry Sector VEIC Ranges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89Appendix F: Stage Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91Appendix G: Data Sources and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Appendix H: Portfolio Company Valuation Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97Appendix I: International Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109Appendix J: Non-US Private Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113Thomson Reuters 5
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  8. 8. What is Venture Capital?Venture capital has enabled the United States to sup-port its entrepreneurial talent and appetite by turningideas and basic science into products and services Venture Capital Backed Companies Known for Innovative Business Modelsthat are the envy of the world. Venture capital funds Employment at IPO and Nowbuild companies from the simplest form – perhapsjust the entrepreneur and an idea expressed as a busi- Company As of IPO Current # Changeness plan – to freestanding, mature organizations. The Home Depot 650 331,000 330,350 Starbucks Corporation 2,521 176,000 173,479 Staples 1,693 75,588 73,895Risk Capital for Business Whole Foods Market, Inc. 2,350 52,900 50,550 eBay 138 15,500 15,362Venture capital firms are professional, institutional Venture Capital Backed Companiesmanagers of risk capital that enables and supports the Known for Innovative Technology and Productsmost innovative and promising companies. This Employment at IPO and Nowmoney funds new ideas that could not be financed Company As of IPO Current # Changewith traditional bank financing, that threaten estab- Microsoft 1,153 91,000 89,847lished products and services in a corporation, and that Intel Corporation 460 86,300 85,840typically require five to eight years to be launched. Medtronic, Inc. 1,287 40,000 38,713 Apple Inc. 1,015 35,100 34,085 Google 3,021 16,805 13,784Venture capital is quite unique as an institutional JetBlue 4,011 11,632 7,621investor asset class. When an investment is made in a Source: IHS Global Insight. Current data is FY 2007 Year End Datacompany, it is an equity investment in a companywhose stock is essentially illiquid and worthless until a companies have received funding but no one- or two-company matures five to eight years down the road. person company has ever gone public! Along theFollow-on investment provides additional funding as way, talent must be recruited and the company scaledthe company grows. These “rounds,” typically occur- up. Ask any venture capitalist who has had an ultra-ring every year or two, are also equity investment, with successful investment and he or she will tell you thatthe shares allocated among the investors and manage- the company that broke through the gravity evolvedment team based on an agreed “valuation.” But, unless from the original business plan concept with the care-a company is acquired or goes public, there is little ful input of an experienced hand.actual value. Venture capital is a long-term investment. Deal Flows — Where The Buys AreMore Than Money For every 100 business plans that come to a ventureThe U.S. venture industry provides the capital to cre- capital firm for funding, usually only 10 or so get aate some of the most innovative and successful com- serious look, and only one ends up being funded. Thepanies. But venture capital is more than money. venture capital firm looks at the management team,Venture capital partners become actively engaged the concept, the marketplace, fit to the fund’s objec-with a company, typically taking a board seat. With a tives, the value-added potential for the firm, and thestartup, daily interaction with the management team is capital needed to build a successful business. A busycommon. This limits the number of startups in which venture capital professional’s most precious asset isany one fund can invest. Few entrepreneurs approach- time. These days, a business concept needs to addressing venture capital firms for money are aware that world markets, have superb scalability, be made suc-they essentially are asking for 1/6 of a person! cessful in a reasonable timeframe, and be truly inno- vative. A concept that promises a 10 or 20 percentYet that active engagement is critical to the success of improvement on something that already exists is notthe fledgling company. Many one- and two-person likely to get a close look.Thomson Reuters 7
  9. 9. Many technologies currently under development byventure capital firms are truly disruptive technologiesthat do not lend themselves to being embraced by The Exit Funnel Outcomes of the 11,686 Companieslarger companies whose current products could be First Funded 1991 to 2000cannibalized by this. Also, with the increased empha-sis on public company quarterly results, many larger Went/Going Public 14%organizations tend to reduce spending on research anddevelopment and product development when things Still Private or Unknown*get tight. Many talented teams have come to the ven- 35%ture capital process when their projects were turned Acquired 33%down by their companies.Common Structure — Unique Results Known FailedWhile the legal and economic structures used to cre- 18%ate a venture capital fund are similar to those used by *Of these, most have quietly failedother alternative investment asset classes, venture pre-agreed formula. Many college endowments, pen-capital itself is unique. Typically, a venture capital sion funds, charities, individuals, and corporationsfirm will create a Limited Partnership with the have benefited far beyond the risk-adjusted returns ofinvestors as LPs and the firm itself as the General the public markets.Partner. Each “fund,” or portfolio, is a separate part-nership. A new fund is established when the venture Beyond the IPOcapital firm obtains necessary commitments from itsinvestors, say $100 million. The money is taken from Many of the most exciting venture capital backedinvestors as the investments are made. Typically, an companies left the venture portfolios after they wentinitial funding of a company will cause the venture public. Far from being a destination, the IPO processfund to reserve three or four times that first invest- provides needed growth capital for a growing compa-ment for follow-on financing. Over the next three to ny. A 2009 analysis by IHS Global Insight shows thateight or so years, the venture firm works with the more than 90% of the jobs at today’s venture backedfounding entrepreneur to grow the company. The pay- public companies were created after it went public.off comes after the company is acquired or goes pub- That is, these companies on average are 10% of theirlic. Although the investor has high hopes for any com- mature size at the time they go public.pany getting funded, only one in six ever goes publicand one in three is acquired. What’s Ahead Much of venture capital’s success has come from theEconomic Alignment of all Stakeholders — entrepreneurial spirit pervasive in the American culture,An American Success Story financial recognition of success, access to good science,Venture capital is rare among asset classes in that suc- and fair and open capital markets. It is dependent uponcess is truly shared. It is not driven by quick returns or a good flow of science, motivated entrepreneurs, protec-transaction fees. Economic success occurs when the tion of intellectual property, and a skilled workforce.stock price increases above the purchase price. Whena company is successful and has a strong public stock The nascent deployment of venture capital in otheroffering, or is acquired, the stock price of the compa- countries is gated by a country’s or region’s cultur-ny reflects its success. The entrepreneur benefits from al fit, tolerance for failure, services infrastructureappreciated stock and stock options. The rank and file that supports developing companies, intellectualemployees throughout the organization historically property protection, efficient capital markets, andalso do well with their stock options. The venture cap- the willingness of big business to purchase fromital fund and its investors split the capital gains per a small companies.8 Thomson Reuters
  10. 10. Executive SummaryDuring 2010, the industry continued to right-size and find equilibrium. Capital under management, headcount,and fundraising all declined, as anticipated. Investment totals were up from 2009 depressed levels, but stillbelow 2008 levels and well below the 2002-2008 trend line. More than 1,000 new companies were funded byventure capital firms in 2010.Initial public offerings in 2010 picked up considerably from the minimal levels of the prior two years. Whilethis provided some relief for the backlog of mature companies waiting for an opportunity to go public, totalshave to increase far beyond 2010 levels for a sustainable industry. A record number of venture-backed compa-nies were acquired, but the total proceeds from those purchases were far from a record.The lack of distributions to the institutional investors who provide the capital to the industry has left these pro-fessional money managers with little capital to recycle back to the industry. Thus, 2010 remained a difficultyear for many venture capital firms to raise money.A healthy venture capital ecosystem requires its metrics to be in balance. And while the quality of new busi-ness opportunities, known as deal flow, remains very high and the best opportunities are getting funded, stress-es remain. the ThomsonONE.com (formerly VentureXpert) data- base of Thomson Reuters, which has been endorsedIntroductionThe National Venture Capital Association 2011 by the NVCA as the official industry activity data-Yearbook provides a summary of venture capital base. Subscribers to that system can perform consid-activity in the United States. This ranges from invest- erable further analysis on the underlying data.ments into portfolio companies to capital managed bygeneral partners to fundraising from limited partnersto valuations of companies receiving venture capital Industry Resourcesinvestments to exits of the investments by either IPOs Venture capital under management in the Unitedor mergers and acquisitions. The statistics for this States by the end of 2010 decreased only slightlypublication were assembled primarily from the from 2009 levels to $176.7 billion. It is, however, theMoneyTree™ Report by PricewaterhouseCoopers fourth decline in a row and belies the expectation forand the National Venture Capital Association, based further reduction in industry assets and overall met-on data from Thomson Reuters and analyzed through rics as the fallout from the technology bubble works its way through the system almost 10 years later. At the end of 2010, the industry managed $176.7 billion dollars, down 38% from the peak a few years back. Figure 1.0 With the industry in a very constrained fundraising Venture Capital Under Management environment in early 2011, further declines are likely. Summary Statistics 1990 2000 2010 Many of the firm, fund, and headcount declines areNo. of VC Firms in Existence 384 861 791 the result of firms that raised money at the time of theNo. of VC Funds in Existence 716 1,701 1,183 bubble being unable to follow those funds with newNo. of Professionals 3,686 7,921 6,328 funds in recent years. As portfolios are wound down,No. of First Time VC Funds Raised 13 104 44 these fund managers leave the industry. With 2010No. of VC Funds Raising Money This Year 86 649 157 fundraising a mere 12% of the amount raised inVC Capital Raised This Year ($B) 3.2 104.8 12.3 2000, the industry has returned to a more traditionalVC Capital Under Management ($B) 28.3 220.3 176.7 size band. At the end of 2010, 462 firms were active-Avg VC Capital Under Mgt per Firm ($M) 73.7 255.9 223.4 ly investing. While slightly above 2009 depressedAvg VC Fund Size to Date ($M) 36.5 88.0 107.8Avg VC Fund Size Raised This Year ($M) 37.2 161.5 78.3Largest VC Fund Raised to Date ($M) 1,775.0 5,000.0 6,300.0 levels, this number is a part of a longer term down-Thomson Reuters 9
  11. 11. National Venture Capital Associationtrend. Industry headcount continues to decrease, end- and still realize a successful exit. In 2010, first roundsing 2010 at 6,328 principals in the industry. overall reflected lower median valuations than these rounds in the period of 2005-2009, with medical devices deals being among the exceptions. Follow-on rounds showed mixed but overall higher valuations inCommitmentsNew commitments to venture capital funds in the 2010 than in the reference period.United States again decreased in 2010 to $12.3 billionfrom the post-bubble fundraising peak in 2006, when While IPO exits were more plentiful in 2010, they$31.8 billion was raised. This reflects an ongoing dif- were not done at higher multiples than in 2009, whichficult fundraising environment in part created by had only 12 IPOs. IPOs in 2009 had a median valua-recent economic stress. However, most of the tion of $428.3 billion, an all-time record and almostdecrease reflects the contraction of the U.S. venture double the median valuation of 2010. However, thecapital industry that began after the technology bubble pre-money valuations for 2009 IPOs were 9.7 timesburst in 2000 and the industry sought a more reason- total venture investment, and in 2010 they were onlyable size band. 4.4 times total venture investment.In 2010, 157 funds raised $12.3 billion, down 25%from 2009, which itself was down 38% from 2008. ExitsOverall, the 2010 amount raised was down 61% from Venture-backed company exit activity was driven by athe 2006 post-bubble peak. A look behind the charts record breaking mergers and acquisitions (M&A) mar-shows that this total was dominated by a small group ket and a strengthening initial public offerings (IPO)of firms, most of which are the same firms that led market. For full year 2010, there were 72 venture-fundraising a decade or two ago. backed IPOs, the biggest year for activity since 2007. More than 400 acquisitions were completed during full year 2010, the biggest year, by number of deals, for venture-backed M&A exits since Thomson ReutersInvestmentsIn 2010, total venture investment increased 20% from started tracking venture capital from the 1970s.2009 levels from $18.3 billion to $22.0 billion.Putting this in perspective, 2010 investment remained The most recent three years have seen the number of22% below 2008 totals and 26% below 2007 which IPOs increase from 6 to 12 to 72. While encouraging,was a post-bubble high. Many in the industry wel- this is far below the IPO levels seen in 1999 and 2000.comed the resizing of the industry’s levels from the Remember, too, there is a large pent-up demand fornear $30 billion level seen in 2007 to just above $20 exits by companies funded late in the technology bub-billion in 2010. Certainly the timing and speed of this ble and shortly thereafter that have not been able to godownward shift followed the credit crunch in 2008 public up to this point.and the subsequent questions about world economicaffairs. However, this resizing began after the tech The number of venture-backed companies acquiredbubble burst and is not unexpected. Deal counts fol- during 2010 (427) sets a new record. This follows alowed suit, increasing 12% in 2010 from the prior slow acquisition year in 2009 (272) and several yearsyear, but counts remained 18% below the 2007 post- during and following the technology bubble whenbubble peak. acquisition counts were in the 300s. Despite the larg- er number of acquisitions, the total disclosed number dollars ($18.5 billion) is far from a post-bubble record.Portfolio Company Post-MoneyValuationsMuch has been written about valuation trends for In 2010, IPO and acquisition activity were both farentrepreneurial companies and whether early round below what is necessary to sustain the industry longvaluations were reasonable enough for a venture cap- term.ital fund to make a financial and time commitment10 Thomson Reuters
  12. 12. 2011 NVCA Yearbook Figure 2.0 Capital Under Management U.S. Venture Funds ($ Billions) 1985 to 2010 300 250 200 ($Billions) 150 100 50 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Figure 3.0 Capital Commitments to U.S. Venture Funds ($ Billions) 1985 to 2010 120 100 80($Billions) 60 40 20 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YearThomson Reuters 11
  13. 13. National Venture Capital Association Figure 4.0 Investments to Portfolio Companies ($ Billions) 1985 to 2010 100 90 80 70 60 ($ Billion) 50 40 30 20 10 0 ’85 ’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 Year Figure 5.0 2010 Investments By Industry Class All Investments Initial Investments No. of No. of Investment No. of No. of InvestmentIndustry Group Companies Deals Amt ($Bil) Companies Deals Amt ($Bil)Information Technology 1,596 1,914 10.8 578 578 2.1Medical/Health/Life Science 679 827 6.3 224 224 1.1Non-High Technology 474 553 4.9 199 199 1.1Total 2,749 3,294 22.0 1,001 1,001 4.3 Figure 6.0 2010 Investments By Company Stage Seed 8% Later Stage 29% Early Stage 24% Expansion 39%12 Thomson Reuters
  14. 14. 2011 NVCA Yearbook Figure 7.0 Venture Capital Investments in 2010 By Industry Sector Telecommunications Other 4% 0.10% Biotechnology 17% Business Products and Services Software 2% Computers and 18% Peripherals 2% Consumer Products Semiconductors and Services 4% 2% Electronics/ Instrumentation Retailing/Distribution 2% 1% Financial Networking and Services Equipment 2% 3% Healthcare Services Medical Devices 1% and Equipment Industrial/Energy 10% Media and Entertainment 16% IT 6% Services 8% Figure 8.0 2010 Investments By State Number of Pct of Investment Pct of State Companies Total ($ Millions) Total California 1,298 39% 11,054.9 50% Massachusetts 353 11% 2,383.4 11% New York 264 8% 1,312.8 6% Texas 144 4% 906.4 4% Washington 117 4% 624.3 3% Illinois 59 2% 575.4 3% Pennsylvania 153 5% 508.5 2% Colorado 77 2% 469.0 2% North Carolina 57 2% 456.3 2% New Jersey 71 2% 450.8 2% All Others 701 21% 3,233.0 15% Total 3,294 21,974.8Thomson Reuters 13
  15. 15. National Venture Capital Association Figure 9.0 Valuations Per Company Industry 2010 Financings ($ Millions) Avg Upper Lower Company Industry Val Max Quartile Median Quartile Min Biotechnology 65.4 390.6 64.1 42.0 13.6 1.2 Business Products and Services 13.5 13.5 13.5 13.5 13.5 13.5 Computers and Peripherals 46.8 66.3 56.6 46.8 37.0 27.2 Consumer Products and Services NA NA NA NA NA NA Electronics/Instrumentation 12.8 20.1 16.4 12.8 9.1 5.4 Financial Services 102.1 102.1 102.1 102.1 102.1 102.1 Healthcare Services 23.1 23.1 23.1 23.1 23.1 23.1 Industrial/Energy 62.6 102.0 99.8 68.6 31.3 11.1 IT Services 213.3 735.0 286.4 158.3 10.3 6.5 Media and Entertainment 447.6 3,569.0 86.0 45.7 32.9 3.5 Medical Devices and Equipment 75.1 221.3 99.3 68.2 20.1 6.5 Networking and Equipment 18.3 39.2 27.3 15.0 5.9 3.9 Other 17.5 17.5 17.5 17.5 17.5 17.5 Retailing/Distribution 295.3 295.3 295.3 295.3 295.3 295.3 Semiconductors 67.1 88.9 75.7 62.5 56.3 50.0 Software 42.6 161.4 50.6 17.4 7.3 1.7 Telecommunications 10.3 11.0 10.7 10.3 10.0 9.7 Total 115.2 3,569.0 85.5 38.0 11.7 1.2 Figure 10.0 Venture-Backed IPOs 300 25.00 No of IPOs 250 Offer Amount ($B) 20.00 200 15.00 Offer ($ Billion) No. of IPOs 150 10.00 100 5.00 50 0 0.00 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Year14 Thomson Reuters
  16. 16. Industry ResourcesVenture capital under management in the United States by the end of 2010 decreased only slightly from 2009levels to $176.7 billion. It is however the fourth decline in a row and belies the expectation for further reduc-tion in industry assets and overall metrics as the fallout from the technology bubble works its way through thesystem almost 10 years later. At the end of 2010, the industry managed $176.7 billion dollars down 38% fromthe peak a few years back. While the number of active firms and professionals in the industry continues todecline, using our methodology described below, the number of firms remained relative constant through 2010.With the industry in a very constrained fundraising environment in early 2011, further declines are likely.Of the 791 firms which raised capital in the last eight vintage years, 45 of these managed more than $1 billion.A total of 97 firms managed more than $500 million.Geographic location of the largest venture firms is quite concentrated. California domiciled firms manage 48%of the industry’s capital although investing partners may be located in other states or even countries. Takentogether, the top five states (California, Massachusetts, New York, Connecticut, and Pennsylvania) hold 81%of total venture capital in this country.Many of the firm, fund, and headcount declines are the result of firms which raised money at the time of thebubble being unable to follow those funds with new funds in recent years. As portfolios are wound down, thesefund managers leave the industry. With 2010 fundraising a mere 12% the amount raised in 2000, the industryhas returned to a more traditional size band. At the end of 2010, 462 firms were actively investing. While slight-ly above 2009 depressed levels, it is a part of a longer term downtrend. Industry headcount continues todecrease to 6,328 principals in the industry. nerships and venture capital funds raised. If a firm raised both buyout and venture capital funds, only theMETHODOLOGYThe number of firms in existence will vary on a venture funds would be counted in the calculation ofrolling eight-year basis as firms raise new funds or do venture capital under management.not raise funds for more than eight years. Under thismethodology, we estimate that there are currently 791 Venture capital under management can be a complexfirms with limited partnerships “in existence”. To statistic to estimate. Indeed, capital under manage-clarify, this is actually stating that there are 791 firms ment reported by firms can differ from firm to firm asthat have raised a venture capital partnership in the there’s not one singular definition. For example, somelast eight years. In reality, there may well be fewer firms include only cumulative committed capital, oth-firms actually making new investments. ers may include committed capital plus capital gains, and still other firms define it as committed capitalFor this publication, we are primarily counting the num- after subtracting liquidations. To complicate matters,ber of firms with limited partnerships and are excluding it is difficult to compare these totals to European pri-other types of investment vehicles. From that descrip- vate equity firms which include capital gains as parttion, it may appear that the statistics for total industry of their capital under management measurements.resources may be underestimated. However, this mustbe balanced with the fact capital under management by For purposes of the analysis in this publication, wecaptive and evergreen funds is difficult to compare have tried to clarify the industry definition of capitalequitably to typical limited partnerships with fixed under management as the cumulative total of commit-lives. For this analysis only, the firms counted for capi- ted capital less liquidated funds or those funds thattal under management include firms with fixed life part- have completed their life cycle. Typically, venture cap-Thomson Reuters 15
  17. 17. National Venture Capital Association Figure 1.01 Capital Under Management U.S. Venture Funds ($ Billions) 1985 to 2010 300 250 200 ($ Billion) 150 100 50 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Figure 1.02 Total Capital Under Management By Firm Type 1985 to 2010 ($ Millions) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Private Independent 11,366 14,274 16,686 18,110 21,532 22,153 21,356 22,074 24,448 27,566 32,442 38,280 50,261 73,849 116,394 182,187 214,105 216,281 218,222 226,969 234,415 247,575 231,906 192,555 167,382 164,690Financial Institutions 3,559 3,707 3,911 3,630 3,174 3,160 2,728 2,544 3,071 3,679 4,477 5,779 8,003 10,959 15,827 22,607 23,983 23,290 22,524 21,560 20,625 19,346 15,266 8,322 7,092 7,321Corporations 1,773 1,766 2,163 2,254 2,276 2,327 2,225 2,342 1,659 1,709 1,616 2,493 2,622 3,523 7,145 13,241 14,279 14,247 13,917 13,508 13,503 13,322 10,246 4,204 3,237 3,743Other 803 853 841 806 717 660 591 340 222 346 466 548 913 1,169 1,534 2,265 2,933 2,881 2,837 2,863 2,556 2,558 2,182 1,619 989 946Total 17,500 20,600 23,600 24,800 27,700 28,300 26,900 27,300 29,400 33,300 39,000 47,100 61,800 89,500 140,900 220,300 255,300 256,700 257,500 264,900 271,100 282,800 259,600 206,700 178,700 176,700 ital firms have a stated 10-year fixed life span, except for life science funds which Figure 1.03 are often established as 12-year funds. Distribution of Firms By Capital Managed 2010 Figure 1.08 shows the reality of fund life. Thomson Reuters calculates capital under 153 160 management as the cumulative amount committed to funds on a rolling eight- 140 123 123 117 year basis. Current capital under manage- 120 ment is calculated by taking the capital 93 100 84 under management calculation from the 80 previous year, add in the current year’s 52 funds’ commitments, and subtracting the 60 45 capital raised eight years prior. 40 20 For this analysis, Thomson Reuters clas- sifies venture capital firms using four 0 0-10 10-25 25-50 50-100 100-250 250-500 500-1000 1000+ distinct types: private independent firms,Capital Under Management ($ Millions) financial institutions, corporations, andThis chart shows capital committed to US venture firms in active funds. While much of the other entities. ‘Private independent’capital is managed by larger firms, of the 791 firms at the end of 2010, roughly 58% of them(456) managed $100 million or less. By comparison, just 45 firms managed active funds total-ing more than $1 billion.16 Thomson Reuters
  18. 18. 2011 NVCA Yearbook Figure 1.04 Fund and Firm AnalysisFund Total Total Total Firms That Raised Capital Avg Avg FirmsVintage Cumulative Cumulative Cumulative Existing Funds in the Last Managed Fund Size Firm Size ActivelyYear Funds Firms Capital ($B) Funds 8 Vintage Years ($B) ($M) ($M) Investing1985 629 322 19.9 530 293 17.5 33.0 59.7 871986 705 352 23.3 589 324 20.6 35.0 63.6 1071987 808 387 27.3 668 352 23.6 35.3 67 1011988 888 407 30.8 701 366 24.8 35.4 67.8 1121989 980 436 35.8 727 381 27.7 38.1 72.7 1071990 1038 452 38.3 716 384 28.3 39.5 73.7 961991 1077 459 40.5 642 363 26.9 41.9 74.1 751992 1149 478 44.1 604 354 27.3 45.2 77.1 971993 1242 508 49.3 613 368 29.4 48.0 79.9 901994 1340 539 56.7 635 382 33.3 52.4 87.2 1041995 1497 604 66.2 689 421 39 56.6 92.6 1751996 1643 665 77.9 755 464 47.1 62.4 101.5 2381997 1860 758 97.6 880 537 61.8 70.2 115.1 3241998 2096 837 127.8 1058 608 89.5 84.6 147.2 3741999 2433 966 181.4 1356 731 140.9 103.9 192.7 6742000 2850 1109 264.5 1701 861 220.3 129.5 255.9 10222001 3089 1188 304.6 1847 917 255.3 138.2 278.4 7342002 3164 1202 313.4 1824 914 256.7 140.7 280.9 5192003 3265 1253 323.8 1768 942 257.5 145.6 273.4 4792004 3430 1319 342.8 1787 976 264.9 148.2 271.4 5312005 3603 1389 368.7 1743 1001 271.1 155.5 270.8 5082006 3781 1459 410.5 1685 1006 282.8 167.8 281.1 5382007 3989 1545 441 1556 996 259.6 166.8 260.6 5802008 4166 1602 471.1 1316 858 206.7 157.1 240.9 5492009 4256 1638 483.2 1167 786 178.7 153.1 227.4 4232010 4347 1673 490.1 1183 791 176.7 149.4 223.4 462The correct interpretation of this chart is that since the beginning of the industry to the end of 2010, 1,673 firms had been founded and 4,347 funds hadbeen raised. Those funds totaled $490.1 billion. At the end of 2010, 791 firms as calculated using our eight-year methodology managed 1,183 individualfunds, each fund typically a separate limited partnership. Capital under management by those funds at the end of 2009 is $176.7 billion. A new column hasbeen added to this Figure showing the number of firms actively investing which is based on the number of independent and corporate venture groupsinvesting at least $5 million in MoneyTreeTM deals.firms are made up of independent private and public agement data referred to in this section consist prima-firms including both institutionally and non-institu- rily of venture capital firms investing through limitedtionally funded firms and family groups. ‘Financial partnerships with fixed commitment levels and fixedinstitutions’ refers to firms that are affiliates and/or lives and does not include infinite lived “evergreensubsidiaries of investment banks and non-investment funds” or true captive corporate industrial investmentbank financial entities including commercial banks groups without fixed commitment levels. The termand insurance companies. The ‘Corporations’ classifi- ‘evergreen funds’ refers to funds that have a continu-cation includes venture capital subsidiaries and affili- ous infusion of capital from a parent organization asates of industrial corporations. The capital under man- opposed to the fixed life and commitment level of a closed-end venture capital fund. Figure 1.05 Principals Information Figure 1.06 Top 5 States By Capital Under Management 2010 No. Estimated Avg Mgt Principals Industry Per Principal State ($ Millions)Year Per Firm Principals ($M) CA 84,341.92007 8.7 8,665 30.0 MA 31,504.62008 8.5 7,293 28.3 NY 13,847.12009 8.6 6,760 26.4 CT 8,756.82010 8.0 6,328 25.7 PA 4,178.1The correct interpretation of this chart is that at year end 2010, there were Total* 142,628.66,328 principals (people who go to board meetings) in the industry. A prin- *Total includes above 5 states onlycipal on average manages $25.7 million and the average firm is made up of8.0 principals.Thomson Reuters 17
  19. 19. National Venture Capital Association Figure 1.07 Capital Under Management By State 1985 to 2010 ($ Millions)State 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010CA 4,946 5,905 6,565 6,804 8,007 7,622 7,714 7,628 8,611 9,306 11,565 14,467 19,352 26,449 50,134 82,972 99,657 100,477 102,886 108,550 113,285 122,221 110,640 96,200 83,439 84,342MA 2,181 2,505 3,392 3,717 4,122 4,255 3,902 4,827 5,015 5,512 6,828 7,328 10,321 14,955 21,542 35,753 44,279 46,852 45,690 46,624 48,176 54,289 52,269 39,469 33,631 31,505NY 3,458 4,497 4,663 4,483 5,968 6,195 5,850 5,705 6,729 7,884 9,006 10,696 11,442 20,916 27,810 40,781 41,841 39,713 38,698 38,356 37,764 30,624 26,812 14,883 13,274 13,847CT 1,236 1,380 1,616 1,692 1,531 1,689 1,567 1,660 1,563 1,719 1,817 1,923 3,449 4,459 6,846 8,162 11,427 11,263 11,228 12,684 12,589 13,933 12,645 12,151 8,704 8,757PA 444 517 547 562 731 773 799 794 573 737 825 1,079 1,499 1,715 2,691 4,944 5,150 4,971 5,254 5,104 5,634 6,152 5,932 4,348 4,093 4,178NJ 623 721 792 780 777 998 925 592 549 732 961 1,481 1,563 2,175 2,727 3,642 4,323 4,239 4,451 4,102 4,089 5,181 5,040 4,164 3,942 3,814WA 312 405 383 422 395 383 197 241 228 179 300 461 680 1,080 1,811 2,814 3,637 3,642 3,517 4,503 4,465 4,470 5,038 4,500 3,648 3,604DC 35 38 38 45 46 47 47 60 28 34 170 1,707 2,378 2,452 2,640 3,624 4,444 4,424 4,286 3,080 3,123 4,200 4,352 4,379 3,594 3,602TX 451 486 714 713 786 834 770 802 941 1,147 1,162 1,239 1,700 2,986 4,730 7,398 8,465 8,397 8,255 8,654 8,308 8,062 6,339 4,689 3,492 3,320IL 469 489 788 968 926 942 905 1,101 1,382 1,451 1,476 1,296 1,979 2,430 3,761 4,362 4,768 5,490 5,893 5,997 5,525 5,419 4,552 4,049 3,744 2,882MD 93 97 122 116 158 163 98 115 377 787 842 1,425 1,749 2,380 3,160 4,898 4,998 4,781 4,736 4,467 4,589 4,569 4,353 2,720 2,955 2,794VA 72 78 78 84 104 91 56 42 35 32 39 64 148 402 1,143 2,378 2,498 2,512 2,691 2,891 3,459 3,488 3,336 2,188 2,612 2,596MN 198 294 337 672 744 883 809 763 847 900 880 511 618 714 1,102 2,249 2,188 2,365 2,357 2,367 2,449 2,600 2,473 1,640 1,668 1,323NC 34 54 87 89 124 114 109 110 109 147 129 280 602 786 999 1,354 1,433 1,582 1,780 1,643 1,470 1,681 1,562 1,212 1,239 1,200MO 556 580 613 591 599 656 652 641 108 137 120 124 148 111 123 215 241 209 199 296 1,029 1,089 1,272 1,205 1,190 1,193UT 9 19 19 15 15 16 15 10 10 25 31 31 94 96 132 270 477 450 562 577 534 639 1,240 1,299 1,105 1,108CO 360 427 326 450 549 507 489 369 456 403 382 451 757 1,012 3,213 4,752 5,259 5,405 5,382 5,210 4,888 4,706 3,028 1,624 990 1,073MI 111 118 125 121 123 37 13 13 12 9 40 39 64 65 432 580 583 581 623 817 851 869 594 733 788 895GA 53 58 138 222 225 238 192 191 246 243 239 165 254 557 693 1,286 1,293 1,289 1,213 1,246 1,281 1,141 1,417 863 838 840OH 867 904 984 871 294 289 297 369 500 559 538 542 862 938 1,426 2,013 2,034 2,016 2,027 2,076 1,895 1,809 1,675 1,033 883 836TN 102 127 191 183 215 259 276 269 201 293 303 455 525 747 1,071 1,246 1,289 1,169 1,163 1,050 1,040 845 671 572 541 582FL 124 130 172 192 195 133 110 97 152 224 322 303 380 690 1,081 1,747 1,711 1,643 1,551 1,540 1,768 1,488 1,240 560 542 551AL 125 130 131 127 134 137 136 137 6 6 6 6 5 24 34 108 108 107 155 174 226 226 217 359 363 364LA 7 7 7 7 7 5 2 11 23 31 49 90 277 367 448 479 731 727 710 747 585 513 434 420 200 267WI 178 95 94 91 101 102 78 78 81 164 168 167 138 140 111 184 183 90 90 100 85 255 268 197 199 234KY 15 16 16 16 0 0 0 0 0 7 21 21 21 21 21 21 21 14 14 14 18 218 219 224 227 227NM 71 99 135 132 168 256 242 230 207 180 154 151 121 12 12 12 12 12 34 35 70 75 76 78 79 114IN 28 38 39 37 56 55 56 29 30 21 21 26 7 19 36 510 509 517 516 531 532 545 553 102 113 109RI 15 16 16 36 36 37 36 36 22 22 23 0 2 2 2 2 26 26 26 26 24 97 98 100 77 77AZ 40 43 43 73 74 75 75 34 44 43 45 10 10 38 38 101 104 145 180 181 200 172 173 130 119 75ME 1 1 20 25 26 26 26 28 29 99 89 86 88 89 209 203 291 219 220 216 216 278 161 165 74 74ID 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 14 14 14 14 14 14 85 85 73 74 74HI 2 2 2 2 2 2 2 0 0 0 2 2 2 2 12 11 11 11 9 16 16 16 7 14 14 44IA 49 51 104 101 63 64 61 62 55 55 5 5 16 17 17 16 60 60 55 65 54 60 68 69 39 39OK 1 29 29 28 37 38 36 37 38 9 10 32 23 67 67 140 140 140 140 118 118 111 112 37 37 37SD 0 0 0 0 0 0 0 0 0 0 0 10 10 74 74 168 167 167 167 162 163 101 101 19 19 35OR 168 175 203 239 242 246 227 116 74 74 77 30 30 40 40 100 100 113 83 86 86 77 79 34 40 26VT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 15 43 42 42 43 43 43 56 42 14 19ND 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 13 13 13NH 24 25 25 49 50 51 50 50 27 27 47 19 66 67 67 66 66 84 65 66 19 30 30 31 31 12DE 39 40 40 38 47 41 41 14 41 52 100 121 115 117 116 140 106 116 69 56 56 57 57 31 31 10SC 2 2 2 2 16 16 15 15 15 15 29 52 37 37 37 102 103 117 103 81 86 86 87 21 20 6MS 0 0 0 0 0 0 0 0 0 0 25 25 25 26 26 25 53 53 28 28 28 30 30 30 1 1PR 0 0 0 0 0 9 9 9 9 9 9 9 49 40 40 39 68 68 68 69 29 29 30 31 1 1KS 0 0 0 0 0 13 13 13 14 14 37 37 57 43 43 42 42 42 19 19 0 0 0 0 0 0NE 0 0 0 1 1 1 1 1 11 11 105 136 139 141 141 176 165 165 71 38 38 38 38 0 0 0AK 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0MT 0 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0NV 0 0 0 0 0 0 0 0 0 0 0 0 0 0 24 23 23 23 23 23 24 24 0 0 0 0WY 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 118 118 118 117 118 119 119 119 0 0 0AR 2 2 2 2 2 2 2 0 0 0 0 0 0 0 19 19 19 19 19 19 19 19 0 0 0 0WV 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 21 21 21 21 21 21 21 21 0 0 0Total 17,500 20,600 23,600 24,800 27,700 28,300 26,900 27,300 29,400 33,300 39,000 47,100 61,800 89,500 140,900 220,300 255,300 256,700 257,500 264,900 271,100 282,800 259,600 206,700 178,700 176,700 Figure 1.08 Life of IT Funds in Years Life of IT Funds % of In Years Funds <= 10 7.4% 11-12 22.2% 13-14 24.1% 15-16 22.2% 17-18 14.8% >=19 9.3% 100.0%Source: Adams Street Partners, based on 2010 analysis of dissolved funds.This chart tracks the year in which a 10-year fund is, in fact, dissolved. These later periods are referred to as “out years.” Historically, after the 10th year,only a few companies remain in the portfolios that typically do not have huge upside potential. But the slow pace of exits in recent years has resulted anumber of good, mature companies remaining in portfolios well past the nominal 10-year mark. Life science funds tend to have lives 2 years longer thantypical technology funds. In preparing this chart, partial years are rounded to the nearest whole year. So 10.4 years would round to 10 years, and 10.5years would round up to 11 years. The median life span of a fund in this analysis is 14.17 years.18 Thomson Reuters
  20. 20. Capital CommitmentsNew commitments to venture capital funds in the United States again decreased in 2010 to $12.3 billion fromthe post-bubble fundraising peak in 2006 when $31.8 billion was raised. This reflects an ongoing difficultfundraising environment in part created by recent economic stress. However, most of the decrease reflects thecontraction of the U.S. venture capital industry that began after the technology bubble burst in 2000 and theindustry sought a more reasonable size band.In 2010, 157 funds raised $12.3 billion, down 25% from 2009, which itself was down 38% from 2008. Overall, the2010 amount raised was down 61% from the 2006 post-bubble peak. A look behind the charts shows that this totalwas dominated by a small group of firms, most of which are the same firms that led fundraising a decade or two ago.For most firms, the fundraising environment in 2010 was difficult, with only the most promising, and in manycases, established, firms able to raise capital. Over the past few years, it has been very difficult for any firmnot perceived as having top quartile potential to raise money. There are several reasons for fundraising diffi-culty: (1) the denominator effect where institutional investors found themselves over allocated to the asset classas their overall portfolio valuations fell, (2) while exit markets have improved from low levels, few distribu-tions back to investors from exits in recent years impairs the traditional “recycling” of capital from maturefund exits to newly-emerging funds, and (3) with strong returns difficult in the current environment, top per-forming firms have a better chance of outperforming other asset classes on a risk-adjusted basis.Looking at annual commitment totals, venture firms had raised considerable funds in 2007 and the first partof 2008. As the economy worsened toward the end of 2008, many institutional investors (e.g., pension plans,endowments, money managers) saw the public portion of their portfolios fall and found themselves over-allo-cated to alternative asset classes, including venture capital. This situation has not changed significantly asfundraising declined through 2010.The top two fundraising states remained California and Massachusetts. Rounding out the top five states areNew York (moving up from fourth place), Connecticut (new to the top five) and North Carolina (also new tothe top five). Overall, funds domiciled in the top five states accounted for 88% of the capital raised comparedwith the top five states raising 82% of the total just two years ago.Please note that the state of fund domicile matters less than has been true historically. Much of the money ismanaged by large, national funds that tend to be domiciled in any of several states with a broad geographicinvesting footprint. Readers should not interpret capital available to entrepreneurs in a given state as limitedto the capital raised in that state. required. The data in this chapter is by calendar year andAs defined by Thomson Reuters, capital commit- incrementally measures how much in new commit-Methodologyments, also known as fundraising, are firm capital ments funds raised during the calendar year. For exam-commitments to private equity/venture capital limited ple, a venture capital firm announces a $200 millionpartnerships by outside investors. For purposes of fund in late 2007, raises $75 million in 2008, and sub-these statistics, the terms “capital commitments,” sequently raises the remaining $125 million in 2009. In“fundraising,” and “fund closes” are used inter- this chapter, nothing would be reflected in 2007, $75changeably. There are three sources of data for capi- million would be counted in 2008, and $125 milliontal commitments: (1) SEC filings that are regularly would be counted in 2009. Assuming it started invest-monitored by our research staff, (2) surveys of the ing and made its first capital call in 2010, the entire fundindustry routinely conducted by Thomson Reuters, would then be considered to be a 2010 vintage yearand (3) verified industry press and press releases from fund. An important note: the fund commitments pre-venture firms. sented in this publication do not include those corporateCapital commitments are stated on either a calendar captive venture capital funds that are funded by a cor-year basis when committed or a vintage year basis once porate parent, nor evergreen funds, which do not typi-the fund starts investing, depending on the analysis cally raise capital from outside investors.Thomson Reuters 19
  21. 21. National Venture Capital Association Figure 2.01 Capital Commitments To U.S. Venture Funds ($ Billions) 1985 to 2010 120 100 80 ($ Billion) 60 40 20 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Figure 2.02 Capital Commitments To Private Equity Funds 1985-2010 V en t u r e Ca p i t a l Bu you ts a n d Me zz a n ine C a pi tal Pr iv at e Equ i ty Ca pi t al Year $Mil No. Funds $Mil No. Funds $Mil No. Funds 1985 3,750.7 118 3,074.5 23 6,825.2 141 1986 3,587.4 102 5,001.9 31 8,589.3 133 1987 4,379.1 116 17,528.3 45 21,907.4 161 1988 4,476.7 106 11,653.4 54 16,130.1 160 1989 4,918.8 106 12,034.5 78 16,953.3 184 1990 3,222.7 86 7,744.5 62 10,967.2 148 1991 1,905.7 41 6,186.6 28 8,092.3 69 1992 5,226.8 81 10,795.3 57 16,022.1 138 1993 4,323.2 92 16,043.8 79 20,367.0 171 1994 7,751.6 138 19,490.0 98 27,241.6 236 1995 9,468.9 165 27,129.2 104 36,598.1 269 1996 12,002.6 170 30,103.2 99 42,105.8 269 1997 18,259.9 246 41,343.2 131 59,603.1 377 1998 30,969.8 298 60,831.0 158 91,800.8 456 1999 54,133.6 444 50,458.4 155 104,592.0 599 2000 104,764.3 649 78,232.3 161 182,996.6 810 2001 38,957.8 324 46,903.5 126 85,861.3 450 2002 16,121.4 205 26,547.1 93 42,668.5 298 2003 11,448.9 162 29,256.9 104 40,705.8 266 2004 18,651.9 210 51,492.6 137 70,144.5 347 2005 30,759.6 234 100,893.4 181 131,653.0 415 2006 31,861.9 235 137,849.7 177 169,711.6 412 2007 31,205.0 237 203,913.0 217 235,118.0 454 2008 26,419.2 213 158,964.0 190 185,383.2 403 2009 16,321.5 150 34,153.7 113 50,475.2 263 2010 12,307.9 157 36,404.7 131 48,712.6 28820 Thomson Reuters
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