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The State of the Venture Capital Markets Mark Suster VCJ Venture Alpha Conference – October 2011 @msuster
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What is the State of the VC Market? What Comes After Social Networking?
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<ul><li>Accenture (software dev) </li></ul><ul><li>BuildOnline (’ 99) </li></ul><ul><li>Koral (’ 05) </li></ul><ul><li>VP Product Mgmt, Salesforce.com </li></ul><ul><li>Largest VC firm in Southern California </li></ul>Both Sides of The Table This Week in VC
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It Is Dramatically Cheaper to Start a Company Open source Cloud Developers Start Companies 2000 $5m $500k 2005 $50k 2009 $5k 2011
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Amazon & Ycombinator Have Fueled the Market <ul><li>90% reduction in cost </li></ul><ul><li>Faster time-to-market </li></ul><ul><li>Great ability to experiment </li></ul>
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The Opportunities are Much Bigger 2001 2011 100 2,000 <ul><li>Always On </li></ul><ul><li>Higher Speed </li></ul><ul><li>Payment Ready </li></ul><ul><li>Socially Linked </li></ul>Millions Online
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Conditions Actually Bode Really Well for VCs Active VCs Seed Deals Revenue Potential +
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So What Exactly Is Changing in our Industry? Some Goods, Some Bads
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Mentorship-Led Investing Has Captured Enormous Talent Pool Access to Deals
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Great New Focused & Disciplined VCs Created Super Early Territory Topic Area (i.e. big data) Early or Classic A Thrive
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Some Traditional VCs Now Doing Many Seed Deals Seed C-E Round A, B Round
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This is Driven by FOMO (Fear of Missing Out) <ul><li>High volume, small deals </li></ul><ul><li>No oversight </li></ul><ul><li>Purely an “option” </li></ul><ul><li>Not smart strategy for VC or founders </li></ul>
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In H1 2011 80% of LP Money Went to Just 7 Firms. The Billion Dollar Club. 7 Firms Total $6.3 $8.1 VC Money Raised ($ billion)
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Which Begs the Question of Whether It’s Venture Capital or Growth Equity Seed C-E Round A, B Round
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Fund Size + FOMO Driving Separation from Price & Underlying Value Time $ Historic Value Today’s Market
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People are Paying Growth Prices for Market Risk Time Valuation Product Risk Growth / Scale Risk Monetization / Competition Risk Market Risk
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Probably Less Traditional VCs Being Funded Lately. Seed C-E Round A, B Round $25-75m Typical Fund Size $200-300m $500m-$1bn
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Traditionally VCs Have Focused on Few Companies & Deep Commitments 1-2 deals per partner / year Many deals / year
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Two great firms have reinvented model by focusing on the “group collective” Ops Support <ul><li>Founder friendly </li></ul><ul><li>High volume </li></ul><ul><li>CEO Summits </li></ul><ul><li>Founder Email Lists </li></ul><ul><li>X-Company Equity Sharing </li></ul><ul><li>Heavy focus on “second round capital” </li></ul>Winning Follow On $$
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Some of Best Returns Seem to Be Driven By “Right-Sized” Traditional VCs <ul><li>Public </li></ul><ul><li>Accessible </li></ul><ul><li>Though-Leaders </li></ul>
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Public Openness Helps With Every Major Stage of the VC Lifecycle Access to Deals Winning Follow On $$ Exits Top end of funnel much wider Founders want to work with you VCs work with others they know, like & respect Awareness with buyers for your portfolio
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So What is the Next Big Investment Opportunity on the Internet? Television. Yes, really.
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Americans watch 5.3 hours of TV / Day TV Reading < 1 Hour 5.3 Hours Media Patterns Online 3 Hours
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You Tell Me What the Future of the Internet Is?
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But VCs Hate Investing in Content – Hits Driven Business?
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A Disruptive Breed of Digital Content Producer Has Emerged UGC Network TV YouTube TV Production Costs / Minute $100-400 $6,000-8,000
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These 4 LA Companies Alone Doing > 3 Billion Video Views / Month YouTube TV Costs / Minute
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YouTube is the New Comcast … And Notice the Change in Branding
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With YouTube Content Distribution is Much More Predictable Viewer <ul><li>Subscribers </li></ul><ul><li>Email Lists </li></ul><ul><li>Facebook Connect </li></ul>YouTube Producer
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Youth Demo Already 1/3 rd of Time Online Watching Video Streaming Video Other Surfing