June 1, 2017 Tomer Dean via TechCrunch : The meeting that showed me the truth about VCs
Ninety-five percent of VCs aren’t actually returning enough money to justify the risk, fees and illiquidity their investors (LPs) are taking on by investing in their funds. (read more…)
May 17, 2017 Christoph Janz @ Point Nine Capital : The growing dissonance between two business models (SaaS and VC)
For VCs, the question is how many of these companies can become large enough to make the (admittedly somewhat weird) business model of venture capitalists work. Large VCs need multiple unicorns just to survive. In SaaS, that means companies that get to $100M in ARR and keep growing fast beyond that mark. With a ~$60M fund, we at Point Nine may not need unicorns to survive, but we won’t generate a great return if we don’t have exits north of $100M either. (read more…)
May 16, 2017 Tech Crunch : There’s no shame in a $100M startup
Ideas that look like billion-dollar businesses at the seed stage can run into unexpected barriers. For modestly funded startups, these mistakes don’t need to be fatal. Unfortunately, most VCs are sized such that they can only succeed if they have several companies in their portfolio exit for more than a billion dollars. So VCs overfund startups with decent but uninspired progress, which cuts off realistic and enriching exit opportunities. (read more…)
CATEGORY: product-market fit, valuation, VC
April 30, 2017 Tom Tunguz : A Spike of Venture Debt in Startups
Venture debt is an attractive way of financing a company’s operations because it’s less expensive and less dilutive than an equity round. As the amount of equity investing in Series As and Bs has exploded, venture borrowing has followed, and a new market has blossomed at the very latest stages. (read more…)
CATEGORY: alternative financing, debt, growth
April 24, 2017 Clement Vouillon via Medium : The Rise of Non “VC compatible” SaaS Companies
If their aim is to build fast growing companies with the help of VCs then it makes sense to work together. But if they prefer to do so by financing their business purely thanks to the revenue they manage to generate from their customers it’s fantastic too. There’s no “evil” or “angel” here, these are just two different approaches to building a business and everyone (founders as well as VCs) should chose its path wisely. (read more…)
CATEGORY: alternative financing, debt
April 22, 2017 Will Gornall and Ilya Strebulaev : Squaring Venture Capital Valuations with Reality
We develop a valuation model for venture capital-backed companies and apply it to 135 U.S. unicorns -- private companies with reported valuations above $1 billion. We value unicorns using financial terms from legal filings and find reported unicorn post-money valuation average 50% above fair value, with 15 being more than 100% above. Reported valuations assume all shares are as valuable as the most recently issued preferred shares. We calculate values for each share class, which yields lower valuations because most unicorns gave recent investors major protections such as a IPO return guarantees (14%), vetoes over down-IPOs (24%), or seniority to all other investors (32%). Common shares lack all such protections and are 58% overvalued. After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status. (read more…)
CATEGORY: valuation, VC
March 29, 2017 CB Insights : The Venture Capital Funnel
What we found:
- There was a 2 percentage point increase from 46% to 48% in companies raising a first follow-on round in our updated analysis.
- 30% of seed funded companies exited through an IPO or M&A, up by 2 percentage points from last year.
- 67% of companies end up either dead, or become self-sustaining (maybe great for the company but not so great for investors). This was a 3 percentage point decrease since our last analysis. It is hard to know the exact breakdown for these companies as funding announcements get a significant amount of fanfare but cash flow positivity or profitability does not. Also, some companies stumble on as zombie companies for years before calling it quits. Not to mention, the death of companies generally happens without any official announcement, i.e. there is no such thing as a “startup death certificate” (although increasingly, startups are willing to share their failure post-mortems).
- Not surprisingly the odds of becoming a unicorn remained low in our new analysis, hovering around 1% (1.07%), with 12 companies reaching that status. Some of these companies are the most-hyped tech companies of the decade, including Uber, Airbnb, Slack, Stripe, and Docker.
- 13 companies exited for over $500M, including leading companies within their categories like Instagram, Zendesk, and Twilio.
CATEGORY: capital, valuation, VC
March 4, 2017 National Venture Capital Association : NVCA 2017 Yearbook: The Go-To Resource on the Venture Ecosystem
The Yearbook is filled with facts and insights on the industry. Five interesting highlights include:
- In 2016, data shows 898 venture firms in existence, managing 1,562 active venture funds and translating to approximately $333 billion in U.S. venture capital assets under management.
- At the end of 2016, 334 venture firms managed $50 million or less. By comparison, only 68 firms managed $1 billion or more of U.S. venture capital assets under management.
- Last year, 2,105 venture firms—including corporate venture groups—participated in at least one investment in a U.S.-based startup. Of those, 738 participated in a startup’s first round of institutional funding.
- The U.S. continues to attract a majority of global venture fundraising, investment, and exit dollars; however, its share has dropped compared to levels a decade ago. The U.S.’s share of global VC investment dropped from 81% in 2006 to 54% in 2016.
- The median size of a venture fund reached $75 million in 2016, the highest median since 2008. Outside of California, Massachusetts and New York, VC fund sizes remained relatively small, with a median 2016 fund size of $23.5 million.
February 7, 2017 Industry Ventures : The Venture Capital Risk and Return Matrix
Generally speaking, we found that the likelihood of achieving expected returns is not simply a function of high multiples. In fact, it varies depending on risk profile. For direct investments, loss rates and holding periods play a significant role. For venture fund counterparts, the same holds true, but exit strategies – whether through IPO or M&A – and capital-deployment timing also matter a great deal. Beginning with the summary below, we explore the various alternatives and how we think about risk and target returns. (read more…)
January 31, 2017 CB Insights : 2016 Global Tech Exits Report
TOTAL TECH EXITS DROPPED IN 2016, BUT IPOs UP. Globally, there were 3260 M&A exits and 98 IPOs in 2016. Total tech exits saw a 4% decline over 2015, which saw 3421 M&A exits and 90 IPOs. Overall, exit activity was up in the second half of 2016 with 1726 exits compared to 1632 exits in the first half of 2016. (read more…)