Early stage trends March 2014

4,551 views

Published on

A presentation on the state of early stage startup investing given to the Silicon Valley Innovation Center in March 2014.

Published in: Economy & Finance, Business
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
4,551
On SlideShare
0
From Embeds
0
Number of Embeds
3,221
Actions
Shares
0
Downloads
21
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide
  • 1st graph updated
  • Neither updated
  • Early stage trends March 2014

    1. 1. Early Stage Internet/Mobile Investing: Trends and Strategies David Shen Launch Capital March 2014
    2. 2. TRENDS Internet/Mobile
    3. 3. Internet Seed Funding SF Bay Area Source: http://www.cbinsights.com/blog/wp-content/uploads/2013/07/bayareainternet.jpg
    4. 4. Seed Deals, All Regions Source: http://www.cbinsights.com/blog/trends/venture-capital-report-2013
    5. 5. Mobile Seed Funding SF Bay Area Source: http://www.cbinsights.com/blog/wp-content/uploads/2013/07/bayareainternet.jpg
    6. 6. Mobile Deals, All Regions Source: http://www.cbinsights.com/blog/trends/venture-capital-report-2013
    7. 7. Halo Report on Angel Investing Q3 2013 Source: http://www.svb.com/halo-report-q3-2013-infographic/
    8. 8. 1H 2013 M&A Dynamics Online/Mobile Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
    9. 9. 1H 2013 M&A Online/Mobile Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
    10. 10. 1H 2013 M&A Online/Mobile Source: http://berkerynoyes.com/publication/trends/13halfonline.aspx
    11. 11. Corporate M&A has fallen dramatically in 2013; Deal volume and prices are down to levels seen during recession Source: NVCA 2013; BerkeryNoyes Notes: • M&A transactions in 2013 have dropped significantly both in number and value. • The mean M&A value in the internet/mobile space was ~$23m in 1H ‘13 down from ~$35m in 1H ’12 & ~$51M in 1H ’11 • 61% of transactions were sub-$20M • Continue to see two types of liquidity events in Silicon Valley and NYC (less so in Boston) • HR Acquisition: Large companies are purchasing 2 and 3 person start- ups for the engineering talent • Later stage VCs providing liquidity to the market via buyout of founder and early investor stock for top 5 venture backed companies $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 0 20 40 60 80 100 120 140 M&A Transactions M&A NOT Disclosed M&As Disclosed
    12. 12. OTHER TRENDS Internet/Mobile
    13. 13. Mobile Rising Aggressively vs. Desktop Source: http://www.kpcb.com/insights/2013-internet-trends
    14. 14. China Mobile Internet Access Source: http://www.kpcb.com/insights/2013-internet-trends
    15. 15. Rise of Crowdfunding JOBS Act July 10, 2013 SEC Chairperson Shapiro: New offering created called a 506(c) which allows companies to freely advertise fund raising to the general public. More to come…
    16. 16. Crowdfunding Part II: Kickstarter/Indiegogo/Medstartr
    17. 17. Rise of the Accelerator 422 Accelerators in the US Souce: http://www.f6s.com/programs/un ited-states?type=accelerator
    18. 18. Explosion of Startups 2009: 472 2010: 770 2011: 1065 2012: 1749 Source: https://www.cbinsights.com/blog/seed-investing-report
    19. 19. Series A Crunch 2009: 418 2010: 515 2011: 703 2012: 692 …leading to more bridge rounds or death of startups who can’t land their A… Number of Series A VCs has not increased; if anything it has decreased. Source: https://www.cbinsights.com/blog/seed-investing-report
    20. 20. 2013 Estimated “Series A Crunch” 20 Notes: • Entire venture industry is now shifting due to this crunch. • Companies raising much larger seed investment rounds to extend runway • Seed investors forced to support companies longer • Seed investors forced to proactively shut down underperforming cos. Source: CrunchBase Funding Gap 177 113 336 635 1681 799 821 1205 1558 2510 622 708 869 923 829 0 500 1000 1500 2000 2500 3000 2009 2010 2011 2012 2013 YTD Pending Series A Funding Gap Seed + Angel Series A
    21. 21. Explosion of (Digital) Seed Investors • Groupon, Facebook, LinkedIn, Twitter go public. • Secondary markets allow early employees/founders in private companies to exit with $millions in their pocket – circa 2011. • Acquisitions of startups pay out to founders – they become angels. • New VCs raise seed funds. • Private Equity/Investment Bankers enter the fray with Wall Street money. • International investors!
    22. 22. Founders and Ideas • Smart, energetic founders are a commodity. • Seasoned entrepreneurs are not. • Great ideas are a commodity. – It is too easy to come up with good/great ideas. • Awesome ideas that no one else is working on are not.
    23. 23. Competition • Too easy and cheap to create software. – Already leading to the explosion of internet startups • The search for “no competitors” – OK with old traditional, offline competitors. – Don’t want other startups competing with the same or near idea. • Battle for attention -> Everyone is your competitor – Too many startups chasing after the same customers, B2B or consumer. Battle for attention=too long to get to breakeven or next round.
    24. 24. Design/User Experience • Great design/UX required, but it is also a commodity and too easily duplicated. – Assuming you can find and hire a great designer • Advantage is usually short term only.
    25. 25. U.S. Early Stage Valuations 2006-2013 • 2006: $2-3M pre • 2007: $3-4.5M pre • 2008: $2-2.5M pre (economic crash) • 2009: first $5M capped note appears from YC • 2010: $6-8M capped notes • 2011: $8-12M capped notes • 2012: $6-8M capped notes • 2013: $5-6M average, upwards to $8M+ capped notes
    26. 26. Fueled by New Investors • New angel investors replace those who slow down – IPOs create new wealth – PE and Investment Bankers getting access • New seed funds are being raised each year • All new investors take what the market gives them – they have no history to draw upon
    27. 27. Early Stage Bubble • Bubble exists in early stage only • Risk vs. reward does not match – Estimate 1 in 20-40+ for hit, most die • Early stage VC doesn’t have great incentives with this kind of data • Angels can still make some money if valuation is good enough but VERY hard to pick • Acquihires are a great way to lose money
    28. 28. “No matter how much we want to go on and on (and on) about how cheap it is to start a company these days, actually building a sustainable company has never been more expensive. Venture studies show the time and money it takes to get public are longer and higher than ever before.” “A rare defense of venture capital classic” - Sarah Lacy, PandoDaily Source: http://pandodaily.com/2013/08/30/a-rare-defense-of-venture-capital-classic/
    29. 29. Funding round $ vs. Runway • Too many raising not enough – Seed rounds going $1+M, upwards of $2M • Acquiring customers take too long – Consumers deluged by apps; B2B sales cycles taking longer – 12+ months • Takes 24-30 months to develop an idea. – Get to breakeven or metrics worthy of the next round.
    30. 30. Super Sized Seed Rounds Source: http://www.cbinsights.com/blog/trends/seed-venture-capital-super-sized
    31. 31. THANKS! David Shen dshen@launch-capital.com

    ×