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Hunting Early-Stage Capital: Trends in a Down Market

Hunting Early-Stage Capital: Trends in a Down Market. Jonathan Rubens, November 18, 2009. Venture funding hits 16 year low. VC fundraising to lowest point in 16 years in the third quarter.

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Hunting Early-Stage Capital: Trends in a Down Market

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  1. Hunting Early-Stage Capital: Trends in a Down Market Jonathan Rubens, November 18, 2009

  2. Venture funding hits 16 year low • VC fundraising to lowest point in 16 years in the third quarter. • 17 funds raised $1.6 billion Q3 2009; smallest number of funds raising money since Q3 1994, and smallest amount raised since 1Q 2003 ($938 million). • Largest funds raised Q3 2009: Khosla Ventures III, $750 million (for an early stage fund); Draper Fisher Jurvetson X, $196 million. (Source: NVCA/Thomson Reuters)

  3. VC Investments2009 vs prior periods for Silicon Valley and US

  4. VC Investments2009 vs prior periods for Silicon Valley and US

  5. VC Investment 2009California, select markets

  6. Seed/Startup vs. later stage

  7. Uptick in IPO market? • Q1 + Q2 2009, five IPOs raised $967 million. • Q3 2009 20 IPOs raised $5.8 billion • 10 VC-backed IPOs Jan 1 -Oct. 20, 2009. (Source: NVCA)

  8. Problems for the IPO Market • I-Bank concentration: fewer boutique banks and fewer companies willing to use them • Longer time to IPO: 2008 median company age of 9.6 years vs. 4.5 years 1998 • 90’s: 80% of IPOs smaller than $50M; 2000s: 20% of IPOs smaller than $50M;

  9. Angels: fewer deals, fewer dollars • 2008 vs. 2007: Angel $ down 26%to $19.2 B; VC total investment down 8% to $30.9 B • Q1-Q2 09 vs. 08: 27% less $, slightly more deals vs same time last year, down overall. • 19% less money invested at the earliest stages: 27% seed/startup, 58% post-seed. • More follow-on investing? Less risk-tolerant angels? More institutionalized angel investing? (UNH – CVR)

  10. Some Angels more institutionalized, moving later • Kereitsu Forum – invests after $500K to $1.5 million seed round, often in a Series A alongside another institutional investor • Band of Angels – recently more follow-on than seed investing; often “lead a syndication of $2-3 million”

  11. Others still investing Early • Angels Forum: “focus is seed and early stage companies seeking $100K to $1 million” • Sand Hill Angels: “as little as $100K to more than $500K”

  12. Total invested – millions of $ Source: CrunchBase

  13. Total invested – millions of $

  14. Total invested – millions of $

  15. Number of Rounds recorded – Crunchbase sampling

  16. Number of Rounds recorded – Crunchbase sampling

  17. Average Round Size millions $

  18. Average Round Size millions $

  19. Average Round Size Millions $

  20. Median Round Size

  21. Median Round Size

  22. Median Round Size

  23. Median Round Size

  24. New early-stage groups, incubators, seed funds • Combination of incubator services, mentoring, microinvestments, for 2-8% • Seed investment plus RFR A round by affiliate later-stage fund • Examples:YCombinator, TechStarts, SeedCamp, LaunchBox, DreamIt Ventures, Highland Capital Partners, Bay Partners

  25. Long term benefits of Angel Money? • UNH study: 13.4 of IPOs had angels as only investors • Companies with angel-only financing reached IPO sooner than purely VC-backed companies • IPOs with angel-only backing may tend to generate higher proceeds than VC-only IPOs • UMD: angel-only or VC-only companies were less likely to fail and more likely to have a successful liquidity event; companies that were backed by both angels & VC funds had inferior outcomes

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