The US Venture Capital Landscape


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A presentation I gave during the 2007 MSC InnoTech conference in Kuala Lumpur, Malaysia.

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The US Venture Capital Landscape

  1. 1. InnoTech.My 2007<br />Colin Wong<br />President of Prosperati<br />
  2. 2. Bio<br />
  3. 3. Bio<br />CEO<br />President<br />
  4. 4. U.S. VC Landscape<br />2006 <br />$25.7B invested<br />Q3 2007<br />$7.1B invested<br />
  5. 5. VC Activity By Category<br />
  6. 6. VC Activity By Category<br />Software represents $1.11B (Q3Y07)<br />BioTech represents $1.1B (Q3Y07)<br />Emergence of CleanTech<br /><ul><li>Alt Energy, Recycling, Power Conservation
  7. 7. $844M (Q3Y07)
  8. 8. 80% increase from Q2 Y07</li></li></ul><li>ICT Investment Trends<br />Consumer oriented Technologies<br />Enterprise oriented Technologies<br />
  9. 9. ICT Investment Trends<br />Web-based Business Models<br /><ul><li>Software-as-a-Service (SaaS)
  10. 10. Web 2.0</li></ul>Wireless/Mobility<br /><ul><li>Mobile navigation
  11. 11. TV
  12. 12. Advertising</li></ul>Video Technologies<br />Consumer oriented Technologies<br />Enterprise oriented Technologies<br />
  13. 13. VC Activity By Location<br />
  14. 14. VC Activity By Location<br />Silicon Valley represents 35% of all U.S. VC activity<br />Q3 Y07<br />Silicon Valley – 287 deals<br />New England – 119 deals<br />LA/Orange County – 56 deals<br />
  15. 15. USA<br />San Francisco Bay Area<br />
  16. 16. San Francisco Bay Area<br />Silicon Valley<br /><ul><li>20km radius
  17. 17. University Research
  18. 18. Venture Capital
  19. 19. Technology Entrepreneurs
  20. 20. 35% of U.S. venture activity</li></li></ul><li>Silicon Valley<br />Oracle<br />Electronic Arts<br />BlueRun Capital<br />Draper Fisher Jurvetson<br />Google<br />Network Appliance<br />Accel Partners<br />Cisco<br />Benchmark Capital<br />Yahoo<br />Sun Microsystems<br />Kleiner Perkins<br />NASA Research<br />Adobe<br />Sequoia Capital<br />Intel<br />Stanford University<br />NVIDIA<br />Hewlett-Packard<br />Apple <br />Ebay<br />
  21. 21. The U.S. Innovation Ecosystem<br />Oracle<br />Electronic Arts<br />BlueRun Capital<br />Draper Fisher Jurvetson<br />Google<br />Network Appliance<br />Accel Partners<br />Cisco<br />Benchmark Capital<br />Yahoo<br />Sun Microsystems<br />Kleiner Perkins<br />NASA Research<br />Adobe<br />Sequoia Capital<br />Intel<br />Stanford University<br />NVIDIA<br />Hewlett-Packard<br />Apple <br />Ebay<br />
  22. 22. Research<br />Research<br />Build a world-class University<br />The best MINDS from all over the world travel here to study here<br />Incredible pool of world class talent<br />Google<br />Larry Page (Michigan)<br />Sergei Brin (Mathematics prodigy from Russia)<br />PhD Computer Science candidates<br />Started Google in a garage within Stanford<br />
  23. 23. Venture Capital<br />Access to EASY seed capital<br />Google got $100K in seed capital from Andy Bechtolsheim (Angel Investor & Co-Founder of Sun Microsystems) over lunch<br />Access to EASY startup capital<br />Google got $1.1M in startup capital from Sequoia and Kleiner Perkins<br />No proven management team<br />No proven technology<br />No proven business model<br />Venture<br />Capital<br />Sequoia Capital <br />got lucky?<br />
  24. 24. Sequoia Capital<br />AND MANY MORE….<br />
  25. 25. A Question for You<br />What does Hewlett-Packard, Apple, Ebay, Microsoft, Google, Yahoo and YouTube have in common?<br />No Proven Team<br />No Proven Technology<br />No Proven Business Model<br />
  26. 26. How Do You Evaluate Startups?<br />
  27. 27. Banking vs. Investment Porfolio<br /><ul><li> ROI Oriented
  28. 28. Cash Flow Oriented
  29. 29. Short-term horizon (12 – 18 months)
  30. 30. Long-term horizon (3 – 5 years)
  31. 31. Collateralized Loan
  32. 32. Preferred Equity
  33. 33. Proven Business Model
  34. 34. Law of Numbers</li></ul>1/2 of investments loose money<br />1/3 of investments break even<br />1/6 of investments make (lots of) money<br />1/6 $$$ &gt; 5/6 $<br />
  35. 35. Risk vs. Reward<br />Risk Cutting vs. Reward Projecting<br />Risk Cutting<br />Concentrate on avoiding the company that will loose 100% of your funding<br />The “Restaurant” Play<br />Reward Projecting<br />Concentrate on finding the company that will give you a 100x return on your funding<br />The “Cure for Cancer” Play<br />
  36. 36. Case-Study: Google<br />Seed funding: <br />$100K from Andy Bechtolsheim (angel investor & co-founder of Sun Microsystems) over lunch<br />Early stage funding: <br />$1.1M from Kleiner Perkins, Sequoia Capital on unproven management, technology and business model<br />IPO: $23B valuation - 2300x ROI<br />Today: $210B valuation – 21,000x ROI<br />As a VC, what is the success / failure ratio you are willing to risk?<br />
  37. 37. Entrepreneurs<br />1 in 20 new companies survive past 1st year<br />More of a myth<br />U.S. SBA : 50% of new companies fail in first 5 years<br />But mindset must be the same<br />Be willing to go off the business plan<br />A business plan is just a beginning<br />Iterate through discoveries<br />market/technology/business model<br />Entrepreneurs<br />
  38. 38. The Iteration Game (Evolution)<br />Raise more money than you need, to iterate<br />Don’t expect your 1st iteration to hit the lottery<br />Every iteration tells you what you shouldn’t do, to get you to what you need to do<br />Google Business Model / Omid vs. Larry<br />Expect second or third round of VC funding<br />Build milestones<br />Understand your failures<br />
  39. 39. Closing<br />US Innovation Ecosystem is about:<br />For VCs<br />Risking x failures to find the next Google<br />For Entrepreneurs<br />Failure *is* an option<br />Risking x failures (iterations) to find the next Google<br />failure<br />Risking<br />to get outsized rewards<br />Fail Fast, Fail Often to Find Success<br />
  40. 40. Thank You<br />It’s all about risk.<br />Colin Wong<br /><br />