Pitch book 2014_annual_u.s._vc_valuations_and_trends_report
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    Pitch book 2014_annual_u.s._vc_valuations_and_trends_report Pitch book 2014_annual_u.s._vc_valuations_and_trends_report Document Transcript

    • PAGE 4: DEAL FLOW DOWN, CAPITAL INVESTED UP PAGE 14: 2013 LEAGUE TABLES PitchBook U.S. VC VALUATIONS & TRENDS Bet ter Data. Bet ter Decisions. 2014 ANNUAL REPORT Median valuations for VC-backed companies are up across the board. PAG E 7» Silicon Valley continues to reign, but VC firms are increasingly making deals in other regions. PAGE 8»
    • CONTENTS 3 4-5 6 7 8-9 10-11 12 13 14 15 CREDITS & CONTACT Introduction PitchBook Data, Inc. JOHN GABBERT Founder, CEO Overview ADLEY BOWDEN Senior Director, Analysis Content JAMES G ELFER Editor Deal Flow by Sector ALLEN WAG NER Senior Financial Writer Design ALLEN WAG NER Senior Financial Writer Median Valuations JAMES G ELFER Editor J ENNIFER SAM Graphic Designer Editing & Data Analysis Regional Overview YNNA CARINO Editor PETER FOG EL Senior Data Analyst Contact PitchBook Valuation Change Between Rounds pitchbook.com RESE ARCH Exits Overview research@pitchbook.com 1.877.636.3496 EDITORIAL Fundraising Overview editorial@pitchbook.com 206.257.7854 SALES 2013 League Tables sales@pitchbook.com Methodology COPYRIGHT © 2014 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. WANT TO BECOME A SPONSOR? PitchBook reports reach thousands of industry professionals every month. Contact us for the opportunity to advertise or sponsor. 1.877.267.5593 PAGE 4: DEAL FLOW DOWN, CAPITAL INVESTED UP PAGE 14: 2013 LEAGUE TABLES PitchBook U.S. VC VALUATIONS & TRENDS Bet ter Data. Bet ter Decisions. 2014 ANNUAL REPORT Median valuations for VC-backed companies are up across the board. PAG E 7» Email Business Development Manager Lisa Helme Danforth at lisa.helmedanforth@pitchbook.com Silicon Valley continues to reign, but VC firms are increasingly making deals in other regions. PAGE 8» Want to see more detail? The PitchBook Platform has thousands of valuations on individual companies and VC rounds waiting for you to explore. Find out more by emailing demo@pitchbook.com or visiting pitchbook.com.
    • Introduction Venture capital (VC) deal activity fell slightly in 2013 but capital invested rose as investors maintained the high level of activity seen in the previous two years. The 4,067 deals and $34.0 billion of capital invested in 2013 are the third highest totals over the last decade, but valuations were the big story last year, as the median pre-money valuation for deals at every stage reached a decade-high. Many investors have expressed concern over high valuations, but VC investors have not been deterred. The breakdown of deals by stage was nearly identical to 2012, with early-stage financings accounting for about half of all VC rounds and angel/seed and late stage deals each comprising about 25%. At the sector level, software continues to drive deal flow, representing 38% of the VC transactions in 2013. Over the last decade, investors have been shying away from other areas of IT and pumping more capital into commercial services and sectors not typically associated with VC, particularly consumerfacing spaces like retail, apparel, nondurables and leisure facilities. While rising valuations have made financings more pricey, they have also created an attractive environment for exits. As with deal flow, exits were down slightly from their record levels in 2012 but remained strong in 2013. It was an especially strong year for IPOs, with 84 U.S.-based VC-backed companies going public. Twitter and other tech businesses garnered most of the media attention, but more than half of the VCbacked companies that went public in 2013 were in the healthcare industry, including a record 36 offerings for pharma & biotech companies. VC firms closed 139 funds in 2013— the most since 2007—but capital raised fell to its lowest level since 2009. This is a result of fewer massive funds being raised, which could be a positive for the industry in the long run, as a majority of the capital raised in recent years have flowed into a handful of mega-funds that rarely execute the early stage deals that are the bedrock of VC investing. When observing the data in this report, please keep in mind that these are preliminary figures for 2013. We hope the information in this report proves insightful and informs your decision-making process in the coming quarters. If you have any questions, comments or suggestions, please contact us at research@pitchbook.com. Despite valuations climbing to record levels, VC dealmaking remained strong in 2013. COUNT OF VC VALUATIONS IN THE PITCHBOOK PLATFORM BY INVESTMENT YEAR 20 0 4 # OF VA LUAT I O N S # OF VC D E A L S % OF DEALS WITH VA LUAT I O N S 20 05 20 0 6 20 07 342 495 644 990 20 0 8 20 0 9 201 0 2011 2012 2013 1,239 1,080 1,447 1,877 1,985 1,482 2,050 2,346 2,533 3,235 3,460 3,037 3,579 4,431 4,804 4,067 17% 21% 25% 31% 36% 36% 40% 42% 41% 36% 3 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Overview VC DEAL FLOW BY QUARTER $12 1,158 $10 $8 757 795 778 854 1,400 1,274 1,295 1,112 1,120 1,041 1,095 1,145 930 1,090 1,200 1,076 1,073 823 870 925 1,000 800 $6 707 600 $4 $5.6 $6.2 $5.5 $6.4 $7.6 $6.4 $6.5 $10.8 $9.5 $9.7 $8.4 $8.8 $9.7 $8.0 $7.6 $8.0 $8.2 $8.6 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q $9.2 $5.6 $2 400 0 $0 2009 2010 2011 Capital Invested ($B) Deal flow dipped slightly in 2013, but capital invested held steady at $34B. VC DEAL FLOW BY YEAR 4,431 4,804 4,067 3,579 $34.1 $34.0 2009 2010 $38.4 $26.9 3,037 $23.0 200 2011 2012 2013 Capital Invested ($B) # of Deals Closed Source: PitchBook 2012 2013 # of Deals Closed VC deal flow fell by about 15% across all stages, breaking a steady string of advances over the last several years. With 4,067 deals, however, 2013 is still one of the best years over the last decade. While the number of VC financings dipped slightly in 2013, capital invested remained strong at $34 billion—the third highest level in the last decade. Quarterly deal activity has been remarkably consistent over the last year and a half, staying within a 100 deal range in all but one quarter. And although activity appears to have dipped significantly in 4Q, we expect that deal flow will ultimately be comparable to recent quarters as more deals are reported to us in the coming weeks. VC investors continued to pump money into massive financing rounds in 2013, completing 30 deals of $100 million or more, which is the second most in the last decade and Source: PitchBook a 36% uptick from 2012. Capital invested in late stage deals eclipsed $20 billion for the first time ever in 2011 and has stayed above that watermark for the last two years, as investors— particularly those that raised mammoth funds in the mid- and late-2000s—look to deploy capital in proven companies with a clear path to exit. To that end, deals of $25 million or more have increased from 11% of late stage investments in 2009 to 21% in 2013, which is the highest proportion in the last decade. A shortage of early stage deals and capital has been a concern for many in the VC community over the last several quarters, but the data suggests that these fears may be overblown. The number of early stage financings hit a decadehigh in 2012, and while early stage deal flow was down 15% in 2013, investment declined by 15% in 4 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • angel/seed rounds and 16% in late stage investments as well. Still, early stage financings have shrunk from as much as 59% of VC deal flow in 2005 to 44% in 2013. The declining proportion of early stage deals can likely be attributed to the incessant rise of angel/seed stage deals by established VC firms over the last decade. Capital invested in seed rounds remained strong, however, as the median round size rose 15% from $1.3 million in 2012 to $1.5 million in 2013. The sudden popularity in angel/seed financings is the result of a confluence of factors, including the institution of simpler term sheets for these deals and the fact that it is cheaper than ever to get virtually any type of business up and running nowadays. In VC DEAL FLOW BY STAGE 2013 2012 2011 2010 addition, companies raising angel/ seed capital are more developed than they have ever been, with the median pre-money valuation reaching an all-time high of $5.1 million in 2013. The downturn in angel/seed rounds from VCs in 2013 resulted in 603 fewer companies receiving an initial round of financing than in 2012, a drop of 33%. Capital invested in first financings only fell by 16%, however, as VC firms placed fewer but larger bets with these companies. Even though the decrease in first financings was dramatic, the 1,230 deals completed in 2013 was still the third highest total over the last decade. 2009 2008 2007 2006 MEDIAN ROUND AMT ($M) BY SERIES 2005 2004 $10.0 0% 20% 40% Seed/Angel 60% Early Stage 80% 100% $9.3 $8.7 $8.1 Late Stage Source: PitchBook FIRST-TIME FINANCINGS $3.0 $6 2,000 1,833 1,800 1,621 $5 1,600 $4 $3 819 923 909 1,230 2010 2011 Series Seed 1,200 1,000 697 800 $2 $4.2 $1.5 $1.3 2012 Series A 2013 Series B $18.8 $15.0 $11.7 $16.0 $14.2 $13.0 $20.0 $18.2 $4.13 $4.93 $4.92 $3.67 $3.22 $5.15 $5.48 $4.76 $5.49 600 $3.58 $1 $1.2 $1.0 $3.6 1,400 1,151 1,161 1,158 $3.1 400 200 0 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Capital Invested ($B) # of Deals Closed 2010 2011 Series C 2012 2013 Series D or Later Source: PitchBook Source: PitchBook 5 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Deal Flow by Sector As the charts on this page reveal, several sectors emerged as clear winners and losers when it came to attracting VC investment in 2013. The services sectors stood out in a year when many saw decreasing deal flow, with investment in commercial, consumer and healthcare services reaching all-time highs. Media deals, on the other hand, tumbled 36% after reaching a record level in 2012, and software was down as well, though is still at relatively high levels historically. Energy is the area that has fallen the farthest from favor in recent years, with deal-making in 2013 hitting its lowest level since 2006. Deals for energy equipment and exploration, production & refining companies dropped to some of the lowest levels in the last decade, while investment in energy services remains fairly strong. Healthcare devices & supplies was another hard-hit sector, with deal flow declining by 25% yearover-year, likely due to the new devices tax that went into effect in January. Investment in healthcare technology systems, however, was robust with 95 VC deals in 2013. Many investors have been exploring opportunities in areas less commonly associated with venture investing. Since 2004, nonsoftware IT has fallen from 21% of VC deals to just 6% in 2013 while consumer products & services has jumped from 8% to 17%. For example, 2012 and 2013 were the two best years ever for deal-making in the apparel & accessories, consumer nondurables and restaurants, hotels & leisure sectors—all of which are consumer sectors. VC DEAL FLOW BY SECTOR 2013 38% 2009 32% 2004 6% 31% 0% Software 10% 19% 9% 9% 40% 21% 20% 24% 60% Commercial Services 3% 5% 25% 21% 20% Non-Software IT 13% 2% 14% 80% Healthcare 100% Energy Other Source: PitchBook VC DEAL FLOW BY SECTOR Seed/Angel Early Stage SOFTWARE Late Stage Total ENERGY 1,555 626 142 966 110 40 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 COMMERCIAL SERVICES MEDIA 528 183 242 262 188 59 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 HEALTHCARE DEVICES & SUPPLIES PHARMACEUTICALS & BIOTECHNOLOGY 343 291 303 276 228 181 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: PitchBook 6 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Median Valuations MEDIAN PRE-MONEY VALUATION ($M) BY SERIES $30 $27.1 $23.2 $25 $120 $105.2 $103.9 $100 $20 $16.9 $80 $18.6 $15 $9.4 $7.8 $10 $7.0 $6.6 $52.1 $36.3 $32.3 $20 $3.2 '04 '05 '06 '07 '08 '09 '10 Series Seed Series A '11 '12 '13 $50.6 $40 $47.7 $5.1 $5 $0 $62.6 $60 $0 '04 '05 '06 '07 '08 '09 '10 Series B Series C '11 '12 '13 Series D or Later Source: PitchBook Source: PitchBook 2013 MEDIAN PRE-MONEY VALUATION ($M) BY SECTOR AND SERIES SEED $5.0 $4.8 SERIES A $6.0 SERIES B $12.1 $5.6 $7.4 $3.1 $27.6 $10.6 $10.8 $9.5 $29.6 $29.1 $24.0 $25.0 $22.3 $6.1 $1.8 SERIES C SERIES D OR LATER $91.7 $84.2 LEGEND $188 $170 $41.8 $54.7 $62.6 $114 $90 $73 $77 Commercial Services HC Devices & Supplies Pharma & Biotech Media $62.5 Software Energy Source: PitchBook Valuations have been a hot topic for the VC industry in 2013—and with good reason. The median pre-money valuation reached a decade-high across all stock series in 2013. Late stage deals were particularly pricey, with the median valuation rising by 23% (to $62.6 million) for Series C rounds and 14% (to $105.2 million) for Series D or later. Valuations for late stage financings have exploded since 2009, coinciding with a steep rise in round sizes. The median of Series C rounds is now at a decade-high of $18.2 million while the median Series D or later financing has returned to its 2007 apex of $20.0 million. Nobody likes to discuss the dreaded “b” word in VC, with many investors dismissing suggestions of a “bubble” as prognostications by those with little understanding of the industry. And while the prices being paid for many companies with strong revenue and broad customer bases can be justified, it is hard not to be skeptical when looking at some of the numbers. For example, Pinterest raised a $200 million Series D round in February at a $2.4 billion pre-money valuation and quickly tapped investors for another $225 million in October, with its pre-money valuation up more than 50% to $3.8 billion. Another obvious example is Snapchat, whose valuation ballooned from $76 million in February to nearly $2 billion in December. 7 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Regional Overview LEGEND MEDIAN PRE-MONEY VALUATIONS BY METRO AREA 65 | 2012 deal count 80 | 2013 deal count 169 156 SEED (2013, $M) Metro Area or State 74 35 485 423 385 301 106 89 65 103 80 87 Austin Bay Area Boston Los Angeles New York Seattle $0 $1 $2 $3 $4 $5 $6 EARLY STAGE (2013, $M) Austin Bay Area Boston Los Angeles New York Seattle 1,376 1,246 68 45 $0 $4 $8 $12 $16 $20 301 LATE STAGE (2013, $M) 229 100 106 While VC investing was down slightly across the country, there were some standouts in 2013. Among the states with at least 50 investments last year, Connecticut and Florida led the way with the highest percentage increases in VC deal flow from the year before. Activity in California, New York, Texas and Washington dropped only slightly. And states that normally don’t come to mind when discussing VC, such as Nebraska and New Mexico, saw solid gains in 2013. But where deal flow was down, it was down dramatically. Massachusetts saw a 23.5% decline in the number of VC investments it attracted in 2013 compared to 2012; while Missouri, North Carolina, Tennessee and Wisconsin—states that had at least 50 deals in 2012— were all down more than 30% in 2013. DEAL COUNT BY METRO AREA AND SELECT STATES (2012 & 2013) Source: PitchBook Austin Bay Area Boston Los Angeles New York Seattle $0 $25 $50 $75 $100 $125 $150 $175 $200 Source: PitchBook Connecticut The story of VC investing in Connecticut is inexorably tied to Connecticut Innovations, the Rocky Hill, CT-based VC firm formed in 1989 by the state legislature in Hartford to invest in high-tech, healthcare and cleantech startups in the Constitution State. The firm completed 58 VC deals in Connecticut in 2013, good for 73% of the state’s overall total of 80 financings last year. Among the states with more than 50 VC investments in 2013, Connecticut saw the largest percentage growth in deal count from the previous year, with most of that growth coming from CT Innovations. The firm completed 28 deals in 2012, when the state finished with 65 VC financings. Much of this growth has been due to an increase in healthcare technology and biotechnology investing, as 39% of Connecticut’s VC financings in 2013 have been for healthcare companies. CT Innovations was responsible for 24, or 77%, of the state’s healthcare and biotech financings in 2013. Wisconsin The Badger State saw a startling 52.7% drop in VC deal-making from 2012 to 2013 (74 rounds to 35). Wisconsin had been making strong gains since the financial crisis to attract capital to invest in local startups, particularly in the Madison and Milwaukee areas. This translated into a 119% jump in the number of VC investments in the state from 2010 to 2011 and another 25% increase from 2011 to 2012. There were just 35 closed VC financings in 2013, which was still the third-highest total on record. However, capital invested in Wisconsin companies last year dropped to $72.8 million from $124.8 million in 2012. In 2011, the state attracted $159.6 million in VC investment across 59 deals. New York City VC investing in the Big Apple dropped in 2013, from 485 deals in 2012 to 423 last year. The decline was most pronounced among seed/angel financings. There were just 140 such rounds in 2013, down from 191 the year before. Valuations in the NYC area are still fairly high though, particularly among late stage deals, as valuations for Series C and Series D or above hit a staggering $199 million last year. 9 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Valuation Change Between Rounds With pre-money valuations rising across the board, it’s no surprise that up rounds have been more prevalent in recent years. There has been little deviation in up, flat and down rounds in recent quarters, with about three of every five VC rounds completed over the last three years at a higher valuation than the previous financing. This is certainly higher than in the years following the financial crisis but is still not back to pre-crisis levels, when roughly three-quarters of VC deals were executed at higher valuations than the last round, which may explain why many people are not expressing concern about an impending bubble. Flat rounds have also accounted for a healthy share of the deals, which has resulted in down rounds comprising less than 20% of VC deals during each of the last three years. But as we have seen multiple times, valuations don’t defy gravity and cannot be in an upward trajectory forever. To that end, the fact that valuations are so high right now could likely result in more flat and down rounds in coming years as some companies will inevitably struggle to meet the lofty expectations built into current prices. This is why some prominent VC investors have recently advised entrepreneurs to not be too greedy in seeking high valuations, which can make raising a subsequent round more difficult. Valuations have been shooting up since hitting a floor in 2009. UP, FLAT & DOWN ROUNDS BY QUARTER 100% 80% 60% 40% 20% 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2009 2010 Up 2011 Flat 2012 Down 2013 Source: PitchBook About three of every five VC rounds over the last three years have been at a higher valuation than the previous financing. UP, FLAT & DOWN ROUNDS BY YEAR 100% 80% 60% 40% 20% 0% 2004 2005 2006 2007 2008 2009 2010 Up Flat 2011 Down 2012 2013 Source: PitchBook 10 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • UP, FLAT & DOWN ROUNDS BY SECTOR 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% '09 '10 '11 '12 '13 '09 '10 '11 '12 '13 '09 '10 '11 '12 '13 '09 '10 '11 '12 '13 '09 '10 '11 '12 '13 Software Commercial Services HC Devices & Supplies Pharma & Biotech Media Up Flat Down Source: PitchBook % CHANGE IN VALUATION FROM PREVIOUS RND But even though valuations were at record levels in 2013, they are climbing slower than they have in recent years, resulting in slightly smaller bump ups in valuation between rounds. As has historically been the case, VC-backed companies are experiencing their biggest bump up in valuation between their Series A and Series B rounds. With the high level of valuations, many companies have been tapping investors for large rounds of capital in quick succession when a successful exit is imminent. Given this trend, it makes sense that the valuation step-up for Series C and Series D or later rounds has fallen somewhat in 2013. 60% 50% 40% 30% 20% 10% 0% 2009 2010 Series A Series B 2011 Series C 2012 2013 Series D or Later Source: PitchBook FEWER INVESTORS ARE USING LIQUIDATION PARTICIPATION IN THEIR VC DEALS 80% 60% 40% 20% 0% '04 '05 '06 '07 Participating '08 '09 '10 '11 '12 '13 Non-Participating Source: PitchBook Liquidation participation used to be the norm for VC deals as investors looked to mitigate the risk of their investments, particularly in flat or down rounds. But in the years since the financial crisis, term sheets have become more entrepreneurfriendly and fewer deals are incorporating liquidation participation and other mechanisms designed to ensure returns for investors. A higher rate of up rounds has certainly played a part in this trend, but it appears that liquidation participation is falling from favor even in flat and down rounds. 11 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Exits Overview More than half of the VC-backed IPOs in 2013 were in healthcare. Another key factor in the declining amount of capital exited was a lack of billion-dollar acquisitions. Just two companies that were acquired in 2013 (Tumblr and Mandiant) carried a price tag of $1 billion or more, compared to six in 2012. It wasn’t just large acquisitions that were down in 2013, though. Corporate acquisitions fell 19% in 2013—hitting the lowest point since 2009. This dropped corporate acquisitions to just 74% of VC exits, matching the second lowest proportion over the last decade. In 2013, VC-backed companies completed IPOs at a pace not seen VC EXIT FLOW BY YEAR $60 592 599 657 700 600 $50 492 574 408 $40 333 $30 500 402 349 400 381 300 $20 $29.2 $51.5 $36.7 $26.6 $13.4 $19.2 $48.6 $26.6 $10 $16.2 200 $23.8 Exit activity started slow in 2013 but gradually accelerated throughout the year. The total number of exits fell 13% from the record-high level in 2012 but was still relatively high by historical standards. The 43% drop in capital exited appears extreme at first blush, but it is important to consider that IPOs accounted for 15% of exits in 2013, up from 8% in 2012. Companies that are taken public typically generate smaller sums on the initial exit but tend to carry high valuations and offer the opportunity for additional liquidity for investors down the road. Also keep in mind that the 2012 exit totals include Facebook’s massive $16 billion IPO. 100 0 $0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Capital Exited ($B) # of Exits Source: PitchBook VC EXITS (#) BY TYPE 2013 2012 15% 11% 74% 8% 11% 81% 2011 84% 9% 2010 83% 10% 7% 2009 10% 2% 88% 2008 12% 3% 86% 2007 10% 74% 0% 20% 40% Corporate Acquisition 7% 60% PE Buyout 80% 16% 100% IPO Source: PitchBook since the dot-com bubble, with 84 companies going public. But unlike in 1999 and 2000, when VC firms took more than 130 companies public each year, there was a high level of sector diversity. More than half (54%) of the companies that had IPOs in 2013 operate in the healthcare industry, including 36 pharma & biotech companies—the most ever. One statistic that won’t show in the charts on this page but was a big part of the liquidity story in 2013 is secondary offerings, where VC firms sell shares in companies they previously took public. The 21 secondary offerings completed in 2013 resulted in an additional $3.53 billion for VC investors, including significant realizations in Pandora, Zillow, Stratasys and Marketo. 12 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Fundraising Overview VC FUNDRAISING BY YEAR $40 $35 200 175 157 180 151 153 160 133 $30 139 124 $25 $20 100 $15 80 81 75 60 40 $17.3 $19.9 $22.4 $18.0 $12.2 $26.9 $36.7 $27.7 $25.7 $10 $5 140 120 101 $16.8 The strong exit environment and large distributions to LPs seemed to improve the fundraising prospects for many VC firms in 2013, as investors were able to close 138 funds—the most since 2007. Capital raised did fall to a fouryear low of $17.2 billion, but this is not necessarily a bad thing for the industry. Many in the VC community have expressed concern about the burgeoning size of VC funds, with the average fund size climbing to $290 million in 2011. This trend has concentrated capital with a few top performers, making it more difficult for many smaller firms to raise funds and creating a dearth of capital for early stage deals. The shift to larger funds has reversed in the last two years, however, as only seven funds closed with $500 million or more in 2013— the fewest in more than a decade. As a result, more than half of the funds raised in 2012 and 2013 had less than $50 million in capital, which is the first time this has happened in the last decade. And in 2013, funds of $500 million or more only comprised 5% of VC funds—the fewest since 2005. Perhaps even more importantly, the capital flowing into VC funds is being dispersed more evenly. Funds of $500 million or more attracted more than half of the capital raised in 2011 and 2012, but their share fell to about one-quarter (28%) in 2013. At the same time, funds with less than $250 million in capital accounted for more than a third (36%) of the capital raised for the first time since 2004. As such, the average fund size fell to $126 million in 2013, which is its lowest point since 2004. Heading into 2014, there are several prominent investors looking $0 20 0 2004 2005 2006 2007 2008 2009 2010 Capital Raised ($B) 2011 2012 2013 # of Funds Closed Source: PitchBook VC FUNDRAISING (#) BY FUND SIZE 100% 90% $1B+ 80% 70% 60% 50% 40% $500M-$1B $250M-$500M $100M-$250M 30% 20% $50M-$100M 10% 0% Under $50M Source: PitchBook to take advantage of the favorable fundraising climate, including Khosla Ventures, Sequoia Capital, Technology Crossover Ventures, KPCB and Draper Fisher Jurvetson. Several new firms are also looking to raise capital for the first time, including G20 Ventures, a Bostonbased firm founded by former partners at Advanced Technology Ventures, and Brooklyn Bridge Ventures, which is led by Charlie O’Donnell, a veteran of Union Square and First Round Capital. 13 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • 2013 VC Deal League Tables INVESTORS SEED/ANGEL I N V E S TO R EARLY STAGE DEALS 500 Startups Y Combinator TechStars SV Angel Andreessen Horowitz Google Ventures Connecticut Innovations CrunchFund First Round Capital Lerer Ventures Atlas Venture Great Oaks Venture Capital Greylock Partners Rothenberg Ventures Portland Seed Fund Entrepreneurs Roundtable Founders Fund FundersClub Healthbox MuckerLab Rock Health 81 60 49 31 29 27 18 18 17 17 16 15 14 13 11 10 10 10 10 10 10 LATE STAGE I N V E S TO R DEALS Andreessen Horowitz Google Ventures First Round Capital Connecticut Innovations New Enterprise Associates 500 Startups SV Angel Founders Fund General Catalyst Partners Khosla Ventures Lightspeed Venture Partners Accel Partners Battery Ventures Social+Capital Partnership KPBC Lerer Ventures Sequoia Capital Greylock Partners Draper Fisher Jurvetson Bessemer Venture Partners True Ventures Source: PitchBook 46 41 35 34 34 33 30 27 27 27 27 26 25 25 24 24 23 21 20 19 17 Source: PitchBook LAW FIRMS EARLY STAGE FIRM Wilson Sonsini 121 Gunderson Dettmer 106 DLA Piper 76 Goodwin Procter 47 Cooley 41 Perkins Coie 30 Orrick Herrington & Sutcliffe 28 Morgan Lewis & Bockius 20 Source: PitchBook DEALS Sequoia Capital KPCB Intel Capital New Enterprise Associates Draper Fisher Jurvetson Andreessen Horowitz Norwest Venture Partners Interwest Partners Battery Ventures Bessemer Venture Partners First Round Capital Index Ventures US Venture Partners Accel Partners Benchmark Capital Greylock Partners Ignition Partners Khosla Ventures Menlo Ventures Venrock 29 27 24 24 23 20 19 16 15 15 15 15 15 14 14 14 14 14 14 14 Source: PitchBook League Table Methodology LATE STAGE DEALS I N V E S TO R FIRM DEALS DLA Piper Wilson Sonsini Gunderson Dettmer Cooley Goodwin Procter Fenwick & West Morgan Lewis & Bockius Jones Day 113 107 96 77 56 47 25 24 All league tables are compiled using the number of completed VC deals for U.S.-based companies in 2013. Deals in which a firm advised multiple parties will only be counted once for that firm. To ensure your firm is accurately represented in future PitchBook reports, please contact survey@pitchbook.com. Source: PitchBook 14 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • Methodology VENTURE CAPITAL Venture capital, for the purposes of this report, is defined as institutional investors that have raised a fund structured as a limited partnership from a group of accredited investors, or a corporate entity making venture capital investments. VALUATIONS Pre-Money Valuation: the valuation of a company prior to the round of investment Post-Money Valuation: the valuation of a company following an investment Up, Flat & Down Rounds: indicates whether the valuation of a company during a specified round was higher (up), lower (down) or the same (flat) as the previous round of financing. To determine the change in valuation, PitchBook compares the change in the price per share of preferred stock from one round to another. SERIES TERMS Liquidation Preference: a distinction given to a class of preferred stock in which that stock receives proceeds prior to other classes of stock during a liquidity event. Note that in the event of an IPO, all preferred stock will be converted to common stock and the liquidation preference will be irrelevant. The liquidation preference is typically capped as a multiple of the investor’s original purchase price. Since 2004, the median participation cap has been 3.0x. PitchBook classifies liquidation preferences as follows: Senior: when a particular class of preferred stock has liquidation priority over all other stock classes Pari Passu: when all classes of preferred stock have equal liquidation rights Complex: any circumstance that does not fall under senior or pari passu Liquidation Participation: a distinction given to a class of stock that outlines how the specified stock series will participate in the liquidation proceeds after the payment of the liquidation preference. Stocks may have one of three types of participation: Uncapped Participation: following the payment of the liquidation preference, all of the remaining assets will be distributed ratably among the common and preferred stock Capped Participation: following the payment of the liquidation preference, the remaining assets will be distributed ratably among the common and preferred stock until the specified stock class reaches a predetermined multiple of the original purchase price Non-Participation: following the payment of the liquidation preference, the specified stock class will not participate in the distribution of the remaining assets EXITS This report includes both full and partial exits via mergers and acquisitions, private equity buyouts and IPOs. . FUNDRAISING This report includes all U.S.-based venture capital funds that have held a final close. Fundof-funds and secondary funds are not included. 15 P I TC H B O O K 2014 A N N UA L VC VA LUAT I O N S & T R E N D S R E P O R T
    • WANT TO DIG UP COMPANY VALUATIONS? PitchBook unearths more valuations than anyone else. Contact us today. We’ll show you. 1.877.636.3496 demo@pitchbook.com pitchbook.com