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Why Invest in Silicon Valley Startups

  1. 1. VC Fund Why Invest in Silicon Valley
  2. 2. VC Fund 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).
  3. 3. VC Fund 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.
  4. 4. VC Fund 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.
  5. 5. VC Fund 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 accomplished. http://www.slideshare.net/dmc500hats/incubator-20-a-silicon-valley-success-
  6. 6. VC Fund http://www.go4funding.com/Articles/Angel-Investors/Angel-Investor-Returns. aspx 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%.
  7. 7. VC Fund http://techcrunch.com/2012/01/03/crunchbaseexits/ 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 $2.3 billion on its first day of public trading for 303% profit on investment (investors probably aren’t selling all their stock on the first day, this is just one way to measure IPO exits). Peak ages of return seem to be 1.5 years and 7.5 years.
  8. 8. VC Fund http://www.ey.com/Publication/vwLUAssets/Globalizing_venture_capital_- _Global_venture_capital_insights_and_trends_report_2011/$FILE/Globalizing_ venture_capital_Global_venture_capital_insights_and_trends_report_2011.pdf 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.
  9. 9. VC Fund 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.
  10. 10. VC Fund 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:
  11. 11. VC Fund ● 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,
  12. 12. VC Fund ● 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).
  13. 13. VC Fund 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 stories!

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