70 Years Of VC Innovation

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A Brief History of Venture Capital Innovation from 1946 to Today, from Sand Hill Rd to Startup Studios, Accelerators, Crowdfunding, AngelList and ICOs.

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70 Years Of VC Innovation

  1. 1. VC70YEARS OF sosv.com/70vcINNOVATION
  2. 2. FOREWORD “Venture Capital” — financing an endeavor in exchange for a share of proceeds in a broad sense is as old as Columbus, and beyond. Its modern form as a type of “private equity” for early stage high growth firms — beyond wealthy individuals and families — started in 1946 with French-born American
 Georges Doriot, the “father of venture capitalism”. Disrupting the Spice Trade Christopher Columbus pitched the rulers of Portugal, Genoa, Venice and Spain over 7 years until the latter agreed to fund him.
  3. 3. This presentation lists some of the significant evolutions in the financing of early stage high growth companies. We used a broader definition of venture capital to include various forms of crowdfunding. VC INNOVATION
  4. 4. Investors are always looking for new ways to allocate capital. The key questions revolve around risks, returns, liquidity, costs, volatility, velocity, difficulty and amount of capital that can be deployed. WHY INNOVATE?
  5. 5. TIMELINE OF VC INNOVATION 19721946 2010 20122005 20172009 20112004 20071996 2013 20152006 2008 Sand Hill Rd Super Angel Sponsored Accelerator Product Crowdfunding Secondary Market Angel List Accelerator Fund JOBS Act Vertical Accelerator Corporate Accelerator Regulation A+ VC ICO ARDC First VC Product Crowdfunding Startup Studio Accelerator Company Builder Platform VC“DST Deal” Equity Crowdfunding ICO RegA+ NYSE IPO SPAC Note: HAX is a hardware-focused vertical program part of SOSV
  6. 6. Startup accelerators are (generally) companies offering seed money, advice and connections over an intense and limited time period, in exchange for equity. Co-founded in March 2005 by Paul Graham Y Combinator created a new category of incubators ACCELERATORS
  7. 7. As of 2017, the world counts thousands of accelerators. Some focus on a sector, geography or stage. They can be for-profit, non-profit, government- backed, sponsored, corporate, etc. ACCELERATORS Accelerators Come In Many Flavors The “Big Four” Invest In >100 Startups / Year Vertical Non-Profit University Corporate Sponsored Government
  8. 8. ACCELERATORS AND FOLLOW-ON FUNDING Source: Pitchbook
  9. 9. Some investment firms build startups themselves, providing capital and management. Germany’s Samwer Brothers Founded Rocket Internet To Build Local Clones Of Successful Startups COMPANY BUILDERS
  10. 10. Several venture capital firms started offering a broad range of services to attract and support startups, from recruiting to marketing. The firm AndreessenHorowitz is among the most prominent “platform VCs” PLATFORM VCs
  11. 11. Secondary markets can offer early liquidity to founders, investors and/or employees. SecondMarket helped buy and sell illiquid assets such as private company stocks. It was acquired by NASDAQ in 2015. SECONDARY MARKETS
  12. 12. Created in 2010 as a matchmaking platform between startups and angel investors. Since 2015 it allows startups to raise capital from private investors free of charge. Naval Ravikant Co-Founder of AngelList ANGELLIST
  13. 13. As of October 2017 AngelList saw over $650M invested in 1,705 startups and $5.7B in follow-ons. 0 200 400 600 2014 2015 2016 Source: AngelList STARTUP INVESTMENTS VIA ANGELLIST
  14. 14. OCULUS Raised $2.4M Acquired for $2B PRODUCT CROWDFUNDING Product crowdfunding is a useful source of capital for startups, particularly in hardware. Backers generally receive products as reward but no equity. Note: SOSV is an investor in Makeblock MAKEBLOCK Raised $185,000 in 2012 500 staff in 2017
  15. 15. The “Jumpstart Our Business Startups” Act is a law intended to help small businesses with funding. President Barack Obama signed the JOBS Act into law on April 2012 JOBS ACT
  16. 16. Further updates to the JOBS Act clarified and eased the rules for equity crowdfunding. REG A+ / D / CF Source: SeedInvest
  17. 17. EQUITY CROWDFUNDING Equity crowdfunding platforms allow individuals to invest directly in companies. SeedInvest is one of the leading platforms
 for equity crowdfunding
  18. 18. EQUITY CROWDFUNDING
  19. 19. “Initial Coin Offerings” are a largely unregulated means of crowdfunding via use of cryptocurrency. In most cases, the “tokens” sold give access to services and do not equate to company shares or voting rights. Mastercoin (now Omni) completed the world’s first ICO in 2013, raising about $500k. ICOs
  20. 20. ICOs HAVE MULTIPLIED Source: CoinDesk
  21. 21. Several investors have turned to ICOs to raise new funds. Those funds are often dedicated to investing in crypto-related startups shares or tokens. Two key benefits is to provide immediate liquidity and a more inclusive base of “LPs”. Blockchain Capital raised US$10 million in an ICO VC ICO
  22. 22. Special Purpose Acquisition Companies (SPAC) are “blank-check” or “shell” firms that have no operations but go public with the intention of using the proceeds to merge with or buy part or all of a company.In Sept’17, the IPO of a SPAC by Social Capital raised US$600M on the NYSE. Draper Oakwood raised US$50M on NASDAQ. SPAC Source: Wikipedia
  23. 23. New ideas are coming, from “Reverse ICO” and a Stock Exchange favoring long-term holding. Both are yet to be tried out. Time will tell if VCs discover new ways to find capital to deploy, and offer startups more access to funding, communities and customers. Tulip bulbs were a highly speculative asset class circa 1636. WHAT NEXT?
  24. 24. 1995 201420122010 2018 SOSV EVOLUTION TIMELINE Angel investor China/Cross-border Accelerator Single LP Fund Hardware Lab to Market Vertical Accelerator Life Sciences + Food Multiple LPs 2015 (next fund)Platform VC Mobile-OnlySean O’Sullivan Hardware Sales & Marketing
  25. 25. 70 YEARS OF INNOVATIONS IN VENTURE CAPITAL sosv.com/70vc

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