Funding Resource


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Mirna Therapeutics CEO, Dr. Paul Lammers, offers this Funding Resource to Austin Technology Council members

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Funding Resource

  1. 1. Sponsored by:PitchBook1H 2013 Venture CapitalFundraising and Capital Overhang Report
  2. 2. PitchBook Bet ter Data. Bet ter Decisions.Introduction Venture capital (VC) deals steal most of the media attention, but in VC circles much of the recent discussion about the industry has centered on the topic of fundraising. Everyone knows that capital is the lifeblood of startups, but it also plays a similarly crucial role for VC funds. Unlike their counterparts on the private equity side, VCs do not typically take out large amounts of debt to fund their deals, so virtually every dollar of capital invested in their portfolio companies comes straight from their fund. To that end, having a reserve of capital to deploy is essential. This is why many people are worried that for the fourth consecutive year VC firms have invested more capital than they have raised. Looking at the VC capital overhang, there is $63.5 billion of dry powder currently available to VC firms. Considering that VC investment has averaged $26.6 billion annually over the last four years, that means VC firms currently have less than 2.5 years’ worth of capital on hand. Another major concern has been the burgeoning size of VC funds, as the average fund size nearly doubled from 2009 to 2011. Larger fund sizes may seem like a positive trend on the surface, but it is actually a result of a massive consolidation of capital with a few of the premier managers of the last decade. Furthermore, larger funds have a necessity to write larger checks, which could lead to a shortage of capital for early stage investments. However, the average fund size had a meaningful 37% drop in 2012 as VC firms had more success raising funds of less than $100 million. Additionally, there were 14 first-time funds raised in 2012—more than double the number from 2011. This report examines current U.S. fundraising trends from several angles to provide a holistic picture of the current fundraising environment. We hope the charts, graphs, and analysis provide you with better data for better decisions. ***Editor’s Note: All fundraising totals and the capital overhang exclude corporate VC allotments and angel investments made through private accounts. However, capital from these types of investors are included in all of PitchBook’s VC investment totals. This explains why the capital overhang increased in 2012 despite there being more capital invested than there was raised. Edison Ventures was founded in 1986. We partner with entrepreneurs to help them build successful, high growth companies. Edison provides capital and value-added services to growth stage ($5 to 20 million revenue), technology businesses. Investments range from $5 to 10 million initially while reserving up to $10 million for additional growth financing. Edison is typically the first institutional and lead investor. In addition to providing expansion capital, Edison funds management buyouts, recapitalizations, spinouts and secondary stock purchases. Edison’s HQ is in Lawrenceville, NJ. Our investment professionals are based in New York, NY, McLean, VA, Needham, MA, and Cleveland, OH. Industry specialties include financial technology, healthcare IT, enterprise 2.0, interactive marketing and ecommerce. Edison has made more than 160 investments and realized over 110 successful exits generating substantial proceeds for founders, management, employees and investors. Edison Ventures manages over $800 million. For more information please visit and follow us on Twitter @edisonventure.COPYRIGHT © 2013 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means – graphic,electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems – without the express writtenpermission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot beguaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitationof an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not tobe relied upon as such or used in substitution for the exercise of independent judgment.1H 2013 PE Fundraising and Capital Overhang Report 1 | | 877.267.5593 | @edisonventures
  3. 3. PitchBook Bet ter Data. Bet ter Decisions.VCs close 90 funds, most since 2008 $10 40 $9 35 Fundraising by Quarter 35 $8 30 30 30 $7 26 22 23 25 $6 21 $5 18 20 15 15 $4 12 14 15 $3 16 10 $2 11 11 $1 9 5 $5.1 $1.3 $4.0 $2.6 $8.7 $1.9 $3.0 $3.7 $5.5 $5.3 $2.9 $6.0 $7.4 $4.0 $7.0 $1.8 $0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2009 2010 2011 2012 Capital Raised ($B) # of Funds Closed Source: PitchBookCapital raised increases for the fourth consecutive yearIn one of the more interesting VCstatistics from the year, the number of $45 181 Fundraising by Year 200VC funds closed in 2012 skyrocketed $40 180 158 157 14761% from 2011 while the amount of $35 160capital raised only ticked up 3%. The 153 140 $30phenomenon stemmed from a strong 120increase in the number of small funds, $25 90 85 100as the number of vehicles with less than $20 80$50 million nearly tripled from 2011 to $15 77 602012. Another positive trend in 2012 $10was the return of first-time funds, which 56 40more than doubled from 2011 to 2012. $5 20 $17.6 $30.3 $31.3 $40.7 $30.7 $12.9 $17.2 $19.6 $20.2Still, there were only 14 first-time funds $0 0in 2012, which is the second lowest total 2004 2005 2006 2007 2008 2009 2010 2011 2012in the last decade. Fundraising in the VC industry Capital Raised ($B) # of Funds Closed Source: PitchBookcan be quite sporadic from quarter toquarter, but 4Q 2012 stands out as beingparticularly weak, with just 11 funds memory as VC firms raised more than seeking capital for nearly 300 vehicles.closing on a total of $1.8 billion—some $7 billion in both 1Q and 3Q. Small funds should continue to seeof the lowest totals in the last four years. Looking ahead into 2013, fundraising success in 2013 as well, as the averageHowever, 2012 did post two of the should continue to accelerate since there target size for currently open VC fundsbest quarters for fundraising in recent are more than 250 investors currently is just $141 million.1H 2013 PE Fundraising and Capital Overhang Report 2 | | 877.267.5593 | @edisonventures
  4. 4. PitchBook Bet ter Data. Bet ter Decisions.VCs refocus their attention on smaller funds in 2012As the accompanying charts show,there was a drastic swing in the size of Fund Count by Fund SizeVC funds raised from 2011 to 2012. 100%VC investors closed just 17 funds of 90% $1B+less than $100 million in 2011, which 80%is less than half the next lowest total $500M-$1Bfrom the last decade. Many investors 70%expressed concern throughout the year 60% $250M-$500Mabout the dearth of smaller funds and 50%the potential ramifications it could $100M-$250Mhave for companies seeking early stage 40%financings. Perhaps some of these 30% $50M-$100Mfears will be abated thanks to a strong 20%resurgence of these vehicles in 2012, Under $50M 10%as funds of less than $100 millionexpanded from 31% of all VC funds in 0%2011 to 49% in 2012. 2005 2006 2007 2008 2009 2010 2011 2012 Another positive trend stemming Source: PitchBookfrom the increase in smaller funds isa growing number of new VC firms; Capital Raised by Fund Size10 of the 35 funds that closed withless than $50 million in 2012 were 100%from firms raising their first fund. It 90%is important to note that while the 80% $1B+number of first-time funds more than 70% $500M-$1B 60% Funds with less than 50% $250M-$500M$100M increase to 49% 40% $100M-$250M of all funds in 2012 30% 20% $50M-$100Mdoubled to 14 in 2012, there were 10% Under $50Mregularly more than 40 first-time VCfunds raised annually throughout the 0%early to mid-2000s. The future looks 2005 2006 2007 2008 2009 2010 2011 2012bright though, as there are more than Source: PitchBook100 VC firms currently raising capitalfor their first vehicle. mega funds of $1 billion or more checks that blur the line between VC VC firms enjoyed more success may not necessarily be a bad thing, as and private equity growth investing.raising capital for funds of virtually some VC professionals had expressed In addition, with the limited amountall sizes in 2012, with the $1 billion concern about the amount of capital of capital currently available to VCs,and over size range being the only being concentrated in a relatively small having a large proportion allocated tosize bucket to see fewer funds closed number of funds. just a few funds could limit funding forin 2012 than 2011. The downtick in Larger funds inevitably lead to larger startups and early stage ventures.1H 2013 PE Fundraising and Capital Overhang Report 3 | | 877.267.5593 | @edisonventures
  5. 5. PitchBook Bet ter Data. Bet ter Decisions.Average fund size drops 37% $400 Average Fund Size & No. of Large Funds $357 25 $350 20 $300 $275 $250 $221 $225 $207 $207 15 $200 $172 $180 $150 $119 10 $100 5 $50 3 12 17 21 19 8 10 15 13 $0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 No. of Funds Larger Than $500M Average Fund Size ($M) Source: PitchBookLPs make larger commitments to VC funds in 2012The average VC fund size escalated $35 Average LP Commitment ($M) to VC Fundsquickly following the financial crisis,nearly doubling from $180 million $30in 2009 to $357 million in 2011.Whether it was a conscious reaction $25or not, VC firms swiftly worked toreverse the trend, as the average fund $20size fell 37% to $225 million in 2012.As the chart above reveals, much of $15the run-up in fund sizes was due to alack of small funds, as opposed to a $10surge in large vehicles. $5 It appears that the decline in fundsizes will continue into 2013, as $14 $14 $21 $17 $17 $30 $19 $18 $28 $0the average target size of currently 2004 2005 2006 2007 2008 2009 2010 2011 2012open funds is just $141 million. Source: PitchBookFurthermore, more than half of thecurrently open funds are seeking $100 highest total from the last decade. This reevaluate their current relationships.million or less. may be a reflection of the growing As LPs begin to pare down their Interestingly, while the average fund scrutiny of the asset class; many LPs number of VC investments, it shouldsize dropped substantially in 2012, the have expressed doubts about VC force investors to write bigger checksaverage institutional LP commitment investing after more than a decade in order to keep their allocation to thesize rose to $28 million—the second of subpar returns and have begun to asset class stable.1H 2013 PE Fundraising and Capital Overhang Report 4 | | 877.267.5593 | @edisonventures
  6. 6. PitchBook Bet ter Data. Bet ter Decisions.VCs have less than 3 years of capital VC Capital Overhang $20 $90 $18.26 $18 Cumula ve Overhang $80 $16 $15.15 Current Overhang ($B) by Vintage $70 Cumula ve Overhang ($B) $14 $60 $12 Overhang by Vintage and Fund Size $10.23 $50 $10 $8.29 $7.73 $40 $8 $30 $6 $3.87 $4 $20 $2 $10 $0 $0 2007 2008 2009 2010 2011 2012 Under $50M $50M-$100M $100M-$250M $250M-$500M $500M-$1B $1B+ Source: PitchBookAs the capital overhang does not imminently. Otherwise, VC firmsincluded corporate VC allotments and risk missing their investment window Cumulative Overhanginvestments made through private and may have to return money to As of year Amount ($B)accounts, the capital overhang actually investors. This should be a positiveincreased slightly in 2012 despite there for the industry in light of the weak 2006 $73.5being more capital invested than there fundraising in recent years. 2007 $85.4was raised. Still, the capital overhang Another important feature of thehas dropped a meaningful 22% since overhang is the dearth of capital 2008 $85.32009, and the $63.5 billion currently available in 2009 and 2010 vintage 2009 $81.9available to VC firms represents less funds; although, this should bethan 2.5 years’ worth of capital if somewhat expected with the anemic 2010 $69.6investors continue investing at their fundraising numbers posted in 2011 $61.3current rate. those years. The lack of available Interestingly, VC firms still hold capital in these vintages could 2012 $63.5nearly $18 billion of capital in 2007 dampen investing in the next couple Source: PitchBookand 2008 vintage funds. Of course, of years. Fortunately, there is theit is important to consider that there aforementioned stash of capital in concentrated in funds of more thanwas a total of $71.5 billion raised in earlier vintages, but VCs still may $500 million. That bodes well for2007 and 2008, so it will naturally take have to draw down more recent companies seeking large late stagea bit longer for managers to allocate vintage funds more quickly than they rounds, but as we have discussedall of their capital. As these funds normally would. throughout this report, it could pose abegin to eclipse the five-year mark, It is also worth noting that 55% challenge for startups and early stagecapital will need to be put to work of the currently available capital is ventures.1H 2013 PE Fundraising and Capital Overhang Report 5 | | 877.267.5593 | @edisonventures
  7. 7. PitchBook Bet ter Data. Bet ter Decisions.VCs invest more than they raise for the 4th straight yearOne of the best ways to put VCfundraising into context is through $50 VC Capital Invested v. Capital Raisedjuxtaposition with investment numbers.As we have mentioned throughout this $40report, VC investment has outstripped $30fundraising for four consecutive years.Much of this trend is the result of an $20 $14.3 $14.7uptick in investment from corporateVC arms and angel investors, which $8.7 $10are not included in the fundraising $1.4numbers, as well as a significant $-reduction in the capital overhang. 2005 2006 2007 2008 2009 2010 2011 2012 In 2012, there was $7.6 billion $(10) -$7.4 -$6.7 -$7.6more VC capital invested than wasraised through VC funds. While this $(20) -$14.8is an improvement from 2011, thetrend can’t last much longer, as many Net VC Capital ($B) Capital Invested ($B) Capital Raised ($B)LPs are reducing or eliminating their Source: PitchBookallocation to the VC asset class. Thesedevelopments have led some people to the amount of dry powder available 2.3 years’ worth of capital available towonder if there needs to be a systemic to VC firms has dwindled from $85.3 invest. Considering this, VC firms willchange in how the VC industry billion in 2008 to $63.5 billion in 2012. either have to curtail their investing oroperates. If VC firms continue to invest at their find new ways to attract capital to the Due to the aforementioned factors, current rate, there would be about asset class in the coming years.Select currently open funds Source: PitchBook Firm Fund Fund Type Fund Target Size ($M) Technology Crossover Ventures Technology Crossover Ventures VIII General VC $2,500 Chesapeake Energy Chesapeake NG Ventures Fund General VC $1,000 Mithril Capital Management Mithril Growth Fund General VC $1,000 VantagePoint Capital Partners VantagePoint CleanTech Fund III General VC $1,000 Kleiner Perkins Caufield & Byers KPCB Green Growth Fund II General VC $764 Raine Partners Raine Partners I General VC $500 Sequoia Capital Sequoia Capital US Venture Fund General VC $450 Social + Capital Partnership Social Capital Partnership General VC $450 KPCB XII Annex Fund Kleiner Perkins Caufield & Byers General VC $360 JAFCO Technology Partners V JAFCO Ventures General VC $300 Proteus Venture Partners Fund I Proteus Venture Partners General VC $300 NewPath Ventures New Path Ventures II Early Stage VC $300 Avalon Ventures Avalon Ventures X Early Stage VC $250 Azure Capital Partners Azure Capital Partners III Early Stage VC $250 Union Square Ventures Union Square Ventures 2012 Fund Early Stage VC $200 Cardinal Venture Capital Cardinal Venture Partners II Early Stage VC $1601H 2013 PE Fundraising and Capital Overhang Report 6 | | 877.267.5593 | @edisonventures
  8. 8. 94,173 Deals 24,826 Investors 58,500 Companies 8,781 Service Providers 6,641 Limited Partners 17,285 Funds * All PitchBook data sourced from the PitchBook Platform as of 1/22/2012Want the whole pie?PitchBook tracks more Private Equity and Venture Capital data than anyone. PitchBook Bet ter Data. Bet ter Decisions. Private Deal Comps Targeted Business Development Sourcing New Deals 1-877-636-3496 Targeted Buyers Lists Benchmarking Funds & IRR Public Company Fundamentals PitchBook Corporate Headquarters 1201 Alaskan Way, Pier 56 - Suite 200 Seattle, WA 98101