Tom Tunguz
Redpoint Ventures
tomtunguz.com

$3.5B under management Offices in
California and China Seed, Series A, B and Growth Investments

How the Fundraising Market is
Evolving

VC Fundraising is Steady; 2014
Strong Start at $8B+ in Q1

Meanwhile, VC investments also steady
at 10 year mean of $25B

And average investment size is
stable to up

But Consumer Publics are down
25%

And the fall has been
broad-based

Enterprise has been hit harder,
falling 40%

Depressing Multiples from All Time
Highs

• Public markets depressing multiples…
• But the venture market is increasingly competitive among venture firms who are raising a constant amount of dollars • Net effect: relative stability in the fundraising market Two Forces in Tension

Startups Are Markedly More Capital
Efficient

IPO Cohort Average ROIC Median
ROIC Count 1998 0.82 0.82 2 2002 1.05 0.88 6 2006 1.78 1.15 13 2010 2.00 1.24 15 Startups today require half the capital to go public compared to 12 years ago

2010 Cohort Segment Average ROIC
Median ROIC ROIC <= 2 1.04 1.00 ROIC > 2 13.5 4.80 Certain segments are unbelievably capital efficient

• Recent IPOs are 2x
more VC dollar efficient as their older brothers • Outliers require negligible capital before IPO because of more efficient avenues of customer acquisition • Net effect: startups need to raise less capital and will require a different pattern of financing Startups are far more capital efficient than they used to be

Is Seed the New A?

Seed investment dollars has tripled
in 4 years to $1.5B in 2013

And while angel rounds have
increased some…

VCs involvement in rounds increases
round size by 400%

Top quartile seeds, aka MegaSeeds
are larger than most series As

MegaSeeds show no signs of
slowing down. VCs buying early access to startups.

Consequently, the MegaSeed has replaced
the traditional Series A

• VCs have 4x’ed the
size of a traditional angel-only seed round • VC dollars have created a new category of seed investment, the MegaSeed which has replaced the Series A • Net effect: Series A investment sizes have increased because capital startups are further along than before Competition in the VC market has pushed VCs to invest in seeds

Startup Fundraising
Playbook

Larger seeds correlated to higher
chances of raising a Series A

Larger seeds are better and
equally as common as smaller seeds

Metric Angel Seeds VC Seeds
Series A Success Rate 33% 54% Mean Seed Raised $M 1.3 1.6 Median Seed Raised $M 1.2 1.5 Mean Series A Raised $M 7.3 7.4 Median Series A Raised $M 5.3 6.0 Raising seed from VCs increases seed round size but no impact on Series A

Metric Insider VC Leads A
All VC Seeds Mean Seed Raised $M 1.6 1.6 Median Seed Raised $M 1.5 1.5 Mean Series A Raised $M 7.2 7.4 Median Series A Raised $M 5.8 6.0 Signaling risk is zero for companies who are able to raise Series A

Q4 is the least attractive
time to raise a seed

• Raise more than $900k
• Easier to do with VC involvement. Typical round has 1.6 VCs • Raise earlier in the year if you can Best practices for raising a seed

Impact of Increasing Seed Investment
in Follow On Rounds

More seed dollars = more
seed companies = more series A competition

Series As rising. Crunch is
in the Series B.

$5-$10M Series As have 2xed
in 4 years

But Series Bs are flat
across the board

Huge increase in the number
of Mega Rounds

• Series A investment up
200%, responding to increase in company formation and seed companies • Series B flat, creating a crunch for follow-ons • Clear winners able to delay IPO/M&A for years because of IPO-sized rounds available in the private markets • Net effect: Winners have access to tons of capital. Others may struggle with the Series B crunch. Series A and B and later rounds are in flux

Appendix

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