This document discusses the state of venture capital and whether it is still relevant given recent trends. It argues that while some parts of the early-stage market have cooled, traditional venture capital for Series A and B rounds has remained fairly consistent. The biggest change is that more successful startups are staying private longer, capturing more value before going public. This extends the time horizon for venture returns but also provides more upside potential for funds that maintain ownership stakes. Overall, the document concludes that venture capital is still very much active and relevant, though the opportunities may be in later-stage growth rather than early-seed investing.

1. !
1
Mark Suster
@msuster
Chang Xu
@_changxu
Is VC Still
A Thing?
Image Credit:
Freepik

2. !
2
Last year, the
discussion was
how ICOs were
going to wipe
out VC.
Image Credit: Pexels

3. 3
And we know
some founders
eschew venture
capital.
Image Credit: Pexels

4. 4
Some fear that
SoftBank, Sequoia
and sovereign
wealth funds may
eat VCs alive.
Image Credit: Pexels

5. Let’s take a
closer look at
what’s actually
happening.
!
5 Image Credit: Pexels

6. 6
We all know that startup
funding is up massively…
…and VC funds are raising
significantly more capital.
2006 2008 2010 2012 2014 2016 2018
$131B
$83B
$29B
2006 2008 2010 2012 2014 2016 2018
$55B
$34B
$34B
Source: Pitchbook NVCA Venture Monitor 4Q’18

7. Some LPs express
concerns about valuation
creep or too much capital.
!
7

8. But let’s peel back the
onion to see what’s
really happening.
8 Image Credit: Freepik

9. 9
The number of Pre-Seed deals (<$1M) backed by VCs skyrocketed (600%) but
has cooled off by 1/3rd over the past three years.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
US VC Number of Deals under $1M
3,374
488
3,543
2,144
Source: Pitchbook NVCA Venture Monitor 4Q’18
>600%
Cooled off
by >1/3

10. 10
The exact same phenomenon happened in the Seed market ($1-5M).
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
US VC Number of $1-5M Deals
3,315
1,036
3,104
2,699
Source: Pitchbook NVCA Venture Monitor 4Q’18
>300%
Down ~20%

11. 11
And the number of Micro Funds raised has followed in lock step.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
# Funds and Capital Raised ($) for <$100M Funds
181
83
181
129
Source: Pitchbook NVCA Venture Monitor 4Q’18
2.2x
Down 30%

12. What is going on
at the seed stage?
!
12 Image Credit: Pexels

13. 13
For one thing, traditional Series A venture capital hasn’t meaningfully increased
investment pace over the past decade.
US VC Number of $5-10M Deals
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
1,118
687
Source: Pitchbook NVCA Venture Monitor 4Q’18
4%
CAGR

14. 14
Series B deal volume also has been fairly constant over the past decade.
US VC Number of $10-25M Deals
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
1,103
643
Source: Pitchbook NVCA Venture Monitor 4Q’18
5%
CAGR

15. 15
As a result, we see a rise in the “Seed Extension” deals feeding into the Series A
pipeline and companies staying in seed phase for longer.
Source: Cendana Capital portfolio company data (with permission)
Time to Series A
Pre-2012 2012 2013 2014 2015 2016 2017 2018
0.9
1.2
0.8
1.1
1.2 1.2
1.4
1.6
Number of Seed Extension Rounds
Pre-2012 2012 2013 2014 2015 2016 2017 2018
69
45
52
39
28
11
8
9
Median years from Series Seed to A

16. 16
The Series A and B part of the market is very similar to how it was 15 years ago—
except with a 3x bigger top end of the funnel.
Series A
funds
Series A
funds
THEN NOW
Angel / Seed
Angel / pre-seed
Seed funds
Source: Upfront analysis
Series B
funds
Series B
funds
Bottom end of the funnel haven’t changed much
Top end of
the funnel is
now 3x larger

17. 17
While it’s true that there has been valuation creep for Series A and B…
US VC Median Pre-Money Valuation ($M) by Year
$0M
$15M
$30M
$45M
$60M
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*
Series A
Series B
Source: Pitchbook NVCA Venture Monitor 4Q’18

18. 18
…part of fund size increases has been about maintaining ownership levels.
US VC Series A Round Median Ownership
0%
10%
20%
30%
40%
1990s 2014 2015 2016 2017 2018
25% 25% 26%
28%
29%
Methodology: For 2014-2018, divided Median Deal Size by Median Post-Money Valuation for Series A deals
Source: Pitchbook data for 2014-2018, Upfront analysis
35%+

19. !
19
For the best VC funds,
the upside case has
never been bigger.
Let’s zoom out and
I’ll explain.
Image Credit: Pexels

20. 20
We all know that capital going to startups has increased significantly in the past
five years (by 300%).
US VC Capital Invested by Deal Size ($B)
2013 2014 2015 2016 2017 2018
$131B
$83B
$77B
$83B
$71B
$48B
Source: Pitchbook NVCA Venture Monitor 4Q’18

21. 21
Most of this capital increase, though, falls into three buckets that can be called
“mega-rounds.”
Source: Pitchbook NVCA Venture Monitor 4Q’18, Upfront analysis
$20B
Total
$40B
Total
$21B
Total
$61B in deals
over $100M
$81B in deals
over $50M
$50-
100M
$100M
-1B
$1B+
US VC Capital Invested by Deal Size in 2018 ($B)

22. 22
What really happened is that the IPO window was pushed out 5+ years
for the best companies and the dollars have shifted from public to private.
Old IPO
6-8 years
New IPO
10-12 years
$50M
$2B++
$
Raised
Prior
to
IPO

23. 23 Source: Pitchbook
3
$7M
$23M
$9M
$60M
5 6
$35M
$100M
$65M
$355M
VC $ Raised
Prior to IPO
Last Private
Market Valuation
Number of
Years Private
In the past, the best companies IPO’d in 6-7 years from inception. As a result the
value captured was all in the public markets.
Companies Founded Before 2000

24. 24
11
9 10
$1.7B
$10B
$4.9B
$15B
$4.4B
$31B
$19.9B
$72B
12
$1.2B
$7B
$370M
$1.5B
Note: Due to limited data set, included high-profile tech companies that are expected to IPO in 2019 (Uber, Lyft, Airbnb, Slack)
Source: Pitchbook
VC $ Raised
Prior to IPO
Last Private
Market Valuation
Number of
Years Private
But now the goalposts have moved and the best companies are staying private twice as
long. This is a massive opportunity for venture firms that have ownership and pro rata rights.
Companies Founded Since 2006

25. 25 Source: Yahoo Finance
If Amazon, Google and Salesforce had each stayed private for 12 years, an
additional $197 billion in value creation could have occurred pre-IPO.
$0B
$207.5B
$415B
$622.5B
$830B
-
2
-
1
+
1
+
2
+
3
+
4
+
5
+
6
+
7
+
8
+
9
+
1
0
+
1
1
+
1
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1
3
+
1
4
+
1
5
+
1
6
+
1
7
+
1
8
+
1
9
+
2
0
$0B
$207.5B
$415B
$622.5B
$830B
-
5
-
4
-
3
-
2
-
1
+
1
+
2
+
3
+
4
+
5
+
6
+
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+
8
+
9
+
1
0
+
1
1
+
1
2
+
1
3
$0B
$207.5B
$415B
$622.5B
$830B
-
4
-
3
-
2
-
1
+
1
+
2
+
3
+
4
+
5
+
6
+
7
+
8
+
9
+
1
0
+
1
1
+
1
2
+
1
3
$708B
$102B
$829B
Year 12
$18B
Year 12
$162B
Year 12
$17B
FOUNDED IPO
IPO
FOUNDED
FOUNDED IPO
1
9
9
9
2
0
0
4
2
0
0
4
1
9
9
8
1
9
9
4
1
9
9
7
2
0
1
8
2
0
1
8
2
0
1
8
Market Cap Appreciation – IPO to 12 Years Post-Inception

26. 26
Here is the “private IPO” phenomenon in numbers.
Source: Pitchbook NVCA Venture Monitor 4Q’18
0
50
100
150
200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
IPOs
Mega-rounds
($100M+ financings)
Total Mega-Round Count
198
104
79
109
125
85
58
43
79
82

27. 27
54 new companies raised at more than $1 billion valuation.
Number of Unicorn Births
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
3 4 4
9
11 12
42 43
22
34
54
Source: Pitchbook Unicorn Report 2018, Pitchbook analysis

28. 28
Just five years ago, $100M+ rounds accounted for just 13% of financings as
opposed to 47% in 2018. Traditional Venture Capital has only grown 14% per year.
Source: Pitchbook NVCA Venture Monitor 4Q’18
US VC Capital Invested by Deal Size ($B)
2013 2014 2015 2016 2017 2018
70
41
$48B
$131B
GROWTH
Mega-rounds
≥$100M
6
61
VENTURE
<$100M rounds
14%
CAGR
60%
CAGR

29. 29
The private IPO trend seems to have gathered steam in 2014.
2008 2009 2010 2011 2012 2013
20
14
25
46
28
36
2014 2015 2016 2017 2018
82
109
79
104
198
Source: Pitchbook NVCA Venture Monitor 4Q’18
US Mega-Round ($100M+) Financings by Year

30. 30
So in reality it seems the private capital market is now three fairly distinct
categories.
Venture Capital
Scale or Bust Private IPOs
Growth Capital
The Start
Seed Capital
20% of deals drive
80% of returns

31. 31
So while time-to-liquidity for VCs has been pushed out, the best VCs (and LPs) are compensated by
capturing more of the upside. Pro rata rights have become much more valuable in the best deals.
Series A 20%
Seed 10%
Which is why many
stage funds have set up
companion funds
to defend their
ownership through exit
Growth Funds
Opportunity Funds
SPVs
Target
Ownership
@ Exit
Structural Changes to Defend Ownership Through Exit

32. So no, Venture Capital is
not dead. Here are some
thoughts on why the
next decade should see
even more upside.
!
32 Image Credit: Freepik

33. Global Internet Users (Millions)
1999 2013 2018
4,200
2,800
250
33
In 1999, the US VC industry raised $53 billion for a nascent Internet population. 20
years later, we have 77% of US and 56% of the world online with $55 billion raised.
Source: World Bank; Internet World Stats; Pitchbook; Industry Ventures
US Internet Users (Millions)
1999 2013 2018
250
230
100

34. 34
Connection speeds in 2018 is a whopping 400 times faster than that in 1999.
Source: Akamai’s State of the Internet, Statista
1999 2014
United States
(Avg Speed, Mbps)
2017
50
Kbps
11.1 18.7
Dial Up

35. 35
Nearly everybody now has a computer in their pocket.
Source: Newzoo, GSMA
Global 27%
56%
United States
66%
72%
1999 2013 2017
N/A
N/A
Smartphone Penetration

36. 36
Because we’re all connected—when concepts work, they scale much faster and
become much more dominant than at any point in human history.
Source: Upfront analysis
Monthly Active Users (Millions)
0
500
1,000
1,500
2,000
2,500
1999 2013 2018
2,271
1,189
0
1,057
236
0 326
218
0
1,000
130
0 186
33
0
Not in existence 130
33 186

37. 37
And with everybody’s credit cards or banks now connected to tech platforms,
we’ve eliminated most purchase friction. We’re one tap away from buying online.
*Amazon user data is estimated as straight line from IPO (1997) to 2018 reported values
Source: Upfront Analysis, PayPal, Loup Ventures, BigCommerce
Total Active Users (Millions)
175
350
525
700
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
*

38. Most industry analysts haven't even begun to comprehend what an enormous shift 5G
speeds will bring. We anticipate enormous creative destruction and company creation.
!
38
Note: Represented AT&T’s average 3G and 4G download speed. 5G networks have the potential to be significantly faster but data is only available from simulated environments
Source: RootMetrics, Wikipedia, Upfront analysis
3G
4G
5G
2G
<1
Mbps
4
Mbps
25
Mbps ?

39. !
39
What does this all mean?
Image Credit: Pexels

40. !
40
Traditional Seed & VC more valuable than ever.
Value has shifted from publics to privates but
skills in VC vs. Growth remain distinct.
We are all now broadband, mobile, social &
1-click to buy.
The pace of technology & networks will continue
to create enormous new opportunities.
Image Credit: Pexels

41. !
41
Mark Suster
@msuster
Chang Xu
@_changxu
So yeah,
VC Is Still
A Thing
Image Credit:
Freepik