Corporate M&A has fallen dramatically in 2013;
Deal volume and prices are down to levels seen during recession
Source: NVCA 2013; BerkeryNoyes
• 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
• 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
M&A NOT Disclosed M&As Disclosed
Mobile Rising Aggressively vs. Desktop
China Mobile Internet Access
Rise of Crowdfunding
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…
Crowdfunding Part II:
Rise of the Accelerator
422 Accelerators in
Series A Crunch
…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
2013 Estimated “Series A Crunch”
• 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
• Seed investors forced to proactively
shut down underperforming cos.
Gap 177 113 336 635 1681
2009 2010 2011 2012 2013 YTD
Pending Series A Funding Gap
Seed + Angel Series A
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!
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
• 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
– Too many startups chasing after the same
customers, B2B or consumer. Battle for attention=too
long to get to breakeven or next round.
• 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.
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
Fueled by New Investors
• New angel investors replace those who slow
– 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
Early Stage Bubble
• Bubble exists in early
• Risk vs. reward does not
– 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
“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
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
Super Sized Seed Rounds