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1/3 of the world's total VC funding is located in
the Silicon Valley.
The total amount invested in Silicon Valley was
$11.6B in 2011 up from $9.1B in 2010.
The two most popular ventures are software
($6.7B) and biotech ($4.7B).
Silicon Valley is a magnet to which numerous
talented engineers, scientists and entrepreneurs
from overseas flock to in search of fame, fast
money and to participate in a technological
revolution whose impact on mankind will surely
surpass the epoch-making European Renaissance
and Industrial Revolution of the bygone age.
It is noteworthy that close to 50% of its skilled
manpower, including engineers, scientists and
entrepreneurs, come from Asia. Prominent among
them are Indians and Chinese, and not a few
Singaporeans. They include such illustrious names
as Vinod Khosla who co-founded Sun
Microsystems, Jerry Yang of Yahoo fame and
Singaporean Sim Wong Hoo, to name a few.
The Valley’s professionals are among the most
hardworking people anywhere. A 15-hour day and
7-day week is not uncommon, especially during
the start-up stage. They would give up social life,
and curtail their family life too, in order to pursue
the pot of gold at the end of the rainbow. It is this
single minded pursuit of excellence, supported by
strong ethics of team work and esprit de corps,
that sustain them until their mission is
Many early/seed-stage investors actually
earned on average a compound ROI of 65.5%
over the last five years. When an entrepreneur
puts into perspective the projected value of
their company in five to seven years, the
amount of equity that investors receive, and
their return outcome, their company’s ROI is
at least 30-40%.
The average successful company has raised $25.3 million,
and sold for $196.8 million, a profit of 676%. Meanwhile,
IPO-bound companies generated lower percentage returns,
but made a lot more money per exit. The average one
raised $580.3 million while private, then went public with a
market cap of $2.3 billion on its first day of public trading for
303% profit on investment (investors probably aren’t selling
all their stock on the first day, this is just one way to
measure IPO exits).
Peak ages of return seem to be 1.5 years and 7.5 years.
The main exit route for VC-backed companies in the US is acquisitions (M&A),
representing 80% to 90% of all exits. Fortunately, acquisition prices have
stayed at reasonably high levels, even during and after the ﬁ nancial crisis. For
example, in the US for 2011, the ﬁ ve biggest acquisitions
ranged from US$700 million to US$800 million. Prices should
remain fairly high and M&A activity can be expected to remain
constant or increase over the next year, given companies’
current option to go public and the fact that the 15 largest
tech ﬁ rms are holding US$300 billion in cash for acquisitions.
(Google alone acquired 48 companies in 2010 for US$1.8 billion
and 79 companies in 2011 for US$1.9 billion.
The 2011 VC market in the US is recovering to the levels
seen just before the irrational dot-com spikes of 1999
and 2000. Levels are now almost back to where they were
before the 2008 ﬁnancial crisis.
The US maintains a strong lead, with about 70% of global
investment in any given year, driven by Silicon Valley.
Venture capitalists and angel investors
categorize startups into stages based on a number
of startup parameters including who makes up the
management team, the value proposition, the
risk, customers’ profiles and engagement,
revenue, etc. and provide equity finance
accordingly. Most startups are categorized into
the following stages:
● Idea stage. This is the initial excitement period, the time when you dream
of riches and fantasize the life of a business owner, but you have no real
plan. At this stage, no professional investor will touch you unless you have
a beautiful track record of success with previous startups. Funding will only
come from you, or friends, family, and fools.
● Early or embryonic stage. Investments at this stage are typically called
seed investments. Funding of $250,000-$1 million is available from angels,
if you have credentials and have done the homework of a good business
plan, financial model, and executive presentation. Anything less the
$250,000, or any amount at this stage with no credentials, still has to come
from friends and families, loans, or federal grant sources.
● Funding or rollout stage. This is the realm of venture capital professional
investors, with funding amounts of $1-10 million, often referred to as the
“A-round,” or first institutional funding. At this stage,
● your startup better be selling a commercial offering, have price and cost
validated, with significant customer sales and a real revenue stream.
Lesser amounts remain in the angel realm.
● Growth stage. Additional funding rounds for growth are often called the
“B-round” through “G-round”, with each being in the $5 million to more than
$50 million from venture capital and other sources. Companies at this
stage must have a large market, good traction, and be focused on scaling
infrastructure and market adoption. This normally means more than 30
employees, and more than $1 million in revenue.
● Exit stage. This is the final stage of investment in venture opportunities,
and is the point where investors expect to see the return and gain from the
original investment. At this stage, you need investment bankers to
negotiate a merger or acquisition (M&A), go private, or help you go public
with an Initial Public Offering (IPO).
Recent Success Stories 2012:
Instagram sold to Facebook for $1B, a growth of 1179%
within 6 months.
Draw sold to Zynga for $210M. It became the top app.
within 7 weeks.
Wildfire sold to Google for $250M (rumor has it).
There are more than 4.6B mobile users in the world
currently, and continuing to grow; thus mobile apps is the
fastest growing industry with no signs of slowing down.
Conclusively, catch the wave of Silicon Valley success