Duncan Davidson - Series A crunch

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Series A crunch by Duncan Davidson at Venture Shift 2013

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Duncan Davidson - Series A crunch

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

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