Category: VC
October 8, 2016 Scaleworks via Medium : Company Valuations
Valuing a company is typically done based on either Value Pricing or Market Pricing. Value Pricing is what mature, stable, normally profitable businesses are bought on, and how Private Equity evaluate companies. Market Pricing is VC’s (and founders) set a price using external factors. Scaleworks Venture Equity sits in the middle with a Growth Pricing method.
Obviously there’s a ton of depth and complexity in the details of how to value companies, and people far more expert than I am have spent years doing it, and written extensively on the subject. My goal here is to write about how Venture Equity (what we call the Scaleworks Fund model) fits in the macro landscape between value and market pricing.
(read more…)CATEGORY: capital, valuation, VC
September 26, 2016 John McDuling at Financial Review : Everyone wants to be a VC now
Venture capital has become [one of] the most glamorous and exciting corners of finance. Rich heirs used to open record labels or try their hand at producing films, now they invest in start-ups. (read more…)
CATEGORY: capital, leadership, VC
September 20, 2016 Industry Ventures : A Graceful Exit – Managing Shareholder and Limited Partner Liquidity
Most investors and companies invest significant time and energy in securing capital, hiring a CEO, or finding a strategic partner. But they devote considerably less to lining up the right shareholder or limited partner when they want to sell or leave a job. When an employee or other shareholder is looking to cash out, how are they treated? How does the exiting partner or management team member treat the company and remaining stakeholders? For whatever reason, most leavers simply want to move on; they give short shrift to the personal and professional benefits of maintaining relationships and connections. More often than not, the exit process is an afterthought or is seen as a waste of time. (read more…)
CATEGORY: capital, leadership, VC
September 16, 2016 Eric Paley via Tech Crunch : Venture capital is a hell of a drug
I regularly see entrepreneurs agonize over a percent of dilution, while ignoring the fact that they are surrendering their most likely exit options for a low-probability shot at building a superstar startup. Billions of dollars have been outright wasted by founders selling future value that didn’t materialize, while surrendering present value that could have been navigated to great success. My advice: Don’t give up your present for a future you haven’t validated. (read more…)
CATEGORY: alternative financing, leadership, VC
May 24, 2016 Inc.com : Steve Blank on the Tech Bubble: ‘VCs Won’t Admit They’re in a Ponzi Scheme
On a broader level, Blank argues the fundamental purpose of venture capital has changed, inasmuch as VCs used to care more about sales and profit. From their perspective, "there was an unspoken but pretty solid rule: We needed five consecutive quarters of profitability and increasing revenues to go public," he explains. "The role of venture capital was to teach you how to turn your idea into a profitable company. The role of venture capital now is the greater fool theory." (read more…)
CATEGORY: downturn, valuation, VC
April 21, 2016 Bill Gurley : On the Road to Recap
The reason we are all in this mess is because of the excessive amounts of capital that have poured into the VC-backed startup market. This glut of capital has led to (1) record high burn rates, likely 5-10x those of the 1999 timeframe, (2) most companies operating far, far away from profitability, (3) excessively intense competition driven by access to said capital, (4) delayed or non-existent liquidity for employees and investors, and (5) the aforementioned solicitous fundraising practices. More money will not solve any of these problems — it will only contribute to them. The healthiest thing that could possibly happen is a dramatic increase in the real cost of capital and a return to an appreciation for sound business execution. (read more…)
January 15, 2016 National Venture Capital Association : $58.8 Billion in Venture Capital Invested Across U.S. in 2015, According to the MoneyTree Report
“With almost $60 billion deployed to startup companies in 2015, the venture capital ecosystem is strong and healthy, and committed to helping entrepreneurs get their breakthrough ideas off the ground and into the marketplace,” said Bobby Franklin, President and CEO of NVCA. “While a handful of unicorns and late-stage funding rounds by nontraditional investors continue to grab the headlines, more than half of all deals in 2015 went to seed and early stage companies, with more than 1,400 companies raising venture capital for the first time. Entrepreneurs in 46 states and the District of Columbia raised venture capital in 2015, a testament to the reach of the venture capital industry and the strength of startup ecosystems across America.” (read more…)
CATEGORY: capital, valuation, VC
November 1, 2015 Cambridge Associates : Venture Capital Disrupts Itself: Breaking the Concentration Curse
For the 18 years covered by this analysis, the top 100 investments accounted for a percentage of total value creation that ranged from a minimum of 72% in 2012 to a maximum of over 100% across several years, making this a robust data set to analyze (our methodology is described in the sidebar). The top 100 deals’ total gains outstripped the total gains of the asset class in each of the years that marked the dotcom crash (1999 to 2003) and in 2005 and 2006 (Figure 1). This fact was particularly salient in 2000, when the asset class as a whole generated a net loss, while the top 100 showed a gain, as well as in 2001, when the total gains of the top 100 accounted for 217% of the asset class’s gains. (read more…)
CATEGORY: VC, winner take all
November 1, 2015 Will Gornall and Ilya Strebulaev : The Economic Impact of Venture Capital: Evidence from Public Companies
Over the past 30 years, venture capital has become a dominant force in the financing of innovative American companies. From Google to Intel to FedEx, companies supported by venture capital have profoundly changed the U.S. economy. Despite the young age of the venture capital industry, public companies with venture capital backing employ four million people and account for one-fifth of the market capitalization and 44% of the research and development spending of U.S. public companies. From research and development to employment to shear revenue, the companies funded by venture capital are a major part of the U.S. economy. (read more…)
June 25, 2015 Jerry Neumann : Power Laws in Venture
The professional innovation community takes it as a given that venture returns are power-law distributed. In Peter Thiel’s class at Stanford he said “…actual returns are incredibly skewed. The more a VC understands this skew pattern, the better the VC. Bad VCs tend to think the dashed line is flat, i.e. that all companies are created equal, and some just fail, spin wheels, or grow. In reality you get a power law distribution.” (read more…)
CATEGORY: resilience, VC, winner take all