Category Archives: Funding New Enterprises

Venture Capital Forum 2013

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Join us for an evening of discussion about venture capital and a wine reception. I’ll be moderating a panel of leading venture capitalists for a discussion of what to expect in the next 12 months: developments in the field; the state of start-ups; what’s likely (and not likely) to be funded in the year ahead.

Any questions or topics you’d like covered?  Let’s us know @JKNews, or email.

Gotham Media Digital Cocktails
Venture Capital Forum 2013
Wednesday, January 30, 2013 from 6:00 PM to 8:00 PM
New York, NY 

Panelists:

  • Steven Brotman Managing Partner, Silicon Alley Venture Partners @StevenBrotman
  • Habib Kairouz Managing Partner, Rho Ventures @HabibKairouz
  • Charlie O’Donnell Partner, Brooklyn Bridge Ventures @ceonyc
  • David Pakman Partner, Venrock @pakman
  • Jerry Spiegel Partner, Frankfurt Kurnit Klein & Selz PC 

Moderator:  Jason E. Klein Founder and CEO, OnGrid Ventures @JKNews

To register, click here:  http://gothammedia.eventbrite.com/

A Venture Capital Recession in 2012

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The National Venture Capital Association data from Money Tree is out, and the VC industry is in a recession:

  • For the full year 2012:
    • VC funds invested declined 10%, to $26.5 billion
    • The number of VC deals done declined 6%, to 3,698.
  • Double-digit decreases in investment dollars across most industries, specifically the traditionally capital-intensive Clean Technology and Life Sciences sectors, offset the increases seen in the Software sector in 2012.
  • Stage of investment shifted from Seed to Early Stage as venture capitalists overall began engaging with companies later in their life cycle than in previous years. Investments into Seed Stage companies decreased 31 percent in terms of dollars and 38 percent in deals with $725 million going into 274 companies in 2012, the lowest annual seed dollars since 2003.
  • Internet-specific companies experienced a 5 percent decline in both dollars and deals for the fullyear 2012 with $6.7 billion going into 976 rounds compared to 2011 when $7.1 billion went into 1,033 deals. However, the year still marked the second highest level of Internet investment since 2001. These companies accounted for 25 percent of all venture capital dollars in 2012, up from 24 percent in 2011.
  • Investments in the NY Metro area held at 11% of the total number of deals, with 397 companies funded, but the dollars deployed declined 18% to $2.3 billion

More details here.

OnGridVentures Top VC Deals of 2012

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Here’s our list of the top Venture Capital deals of 2012 in our sectors, culled from the VentureBeat Top 15 list:

Big Data-Enabled, Next Generation Content

Drilling Info, $166 million

Drilling Info might have the least interesting name on this list, but what it offers is certainly attractive — so much that it raised $166.2 million in a major Q1 funding round. It offers a SaaS-based oil and gas business-intelligence platform, and it claims to be the “most complete source of North American and offshore waters oil and gas information.” It’s easy to see how a company offering easy access to that kind of data could get some serious cash. The round was raised by Insight Venture Partners, Battery Ventures, and Eastern Advisors Private Fund, with Vaquero Capital advising the deal.

Big Data Enabled

Box, $125 million

Cloud storage and collaboration startup Box had a huge year with lots of developments including its OneCloud syncing solution, the opening of an international headquarters in London, and more. But one of its biggest pieces of news was when it raised $125 million in fresh capital for aggressive growth around the world. This latest big round was led by General Atlantic, with participation from Bessemer Venture Partners, DFJ Growth, New Enterprise Associates, SAP Ventures, Scale Venture Partners, and new investor Social+Capital Partnership.

E-commerce; Social Frameworks

Fab, $117 million

Social shopping startup Fab had a big year, and it recently announced that it sold $6.5 million worth of goods between Nov. 23 and Nov. 29, which is a very good number to kick off the holiday season. With that kind of traction, we’re sure its many investors — Atomico, Pinnacle Ventures, re-Net Technology Partners, Mayfield Fund, DoCoMo Capital, Menlo Ventures, Andreessen Horowitz, Baroda Ventures, and First Round Capital — were glad they put up more than $100 million back in July. Fab CEO Jason Goldberg also informed us that his startup raised another $16 million in October and November at the same terms as the July round, bringing the total to an impressive $117 million. Fab also recently said it plans a “pivot” in 2013, so we’ll see how that pans out.

Social Frameworks, Next Generation Content 

Pinterest, $100 milion

Pinterest, now the third most popular social network in the U.S. after Facebook and Twitter, had a hard time getting VCs’ attention when it first started out. But it didn’t appear to have much trouble raising a new $100 million round in May. The round was led by Japanese web retailer Rakuten, with participation from Andreessen Horowitz, Bessemer Venture Partners, FirstMark Capital, Glencoe Capital, and other angel investors. As 2012 has continued, Pinterest has gained more traction. Recently, it added pin previews inside Twitter and opened its doors to business accounts.

Health Efficiency, Social Frameworks

Castlight Health, $100 million

Castlight Health, one of two health care companies to make this list, dubs itself as “the leader in health care transparency.” It offers consumers and companies comprehensive data about the price and quality of health care, ideally to help them save money while also improving their care. The company attracted astellar $99.9 million investment in May from T. Rowe Price, Redmile Group, Allen & Company, Maverick Capital, Oak Investment Partners, U.S. Venture Partners, and Venrock Associates.

Social Frameworks

Github, $100 million

GitHub, easily one of the most exciting startups of the year, caught a lot of attention in July for raising nearly $100 million for a Series A round. (It could be the biggest Series A ever.) Investors Andreessen Horowitz and SV Angel clearly believe in GitHub’s mission of supplying social coding tools to developers. The company has grown quite popular since its launch in 2008, and it has more than 1.7 million members who have shared more than 3 million code repositories. It recently hired Vlado Herman, the former CFO of Yelp, to help it manage its huge round of funds.
Read more at http://venturebeat.com/2012/12/28/top-venture-capital-deals-2012/#qQ7hmThIhFLXi8qk.99

Who Gets Better Returns, Professional VCs or Angel Investors?

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Early stage venture capitalist John Frankel (@john_frankel) has compiled some very rich data on the returns of early stage and venture investing.  Some key points:

  • Venture capital funds, in aggregate, managed an anemic 4.4% end-to-end pooled return over the last 10 years
  • As one Kauffman Foundation report sums it up, “since 1997, less cash has been returned to investors than has been invested in VC.”
  •  A typical firm now makes two-thirds of its revenue from annual management fees rather than performance-based carried interest.  The larger the fund, the more likely it is that income is tied to fund size rather than performance. The incentive becomes raising larger funds rather than generating stronger returns.
  • Angel groups, on the other hand, have done exceptionally well.  Every large angel return study has mean angel IRRs ranging from 18 percent to 38 percent.  Amongst angels, top performers conduct more due diligence before investing and are subsequently more actively involved with ventures.

You can see the detailed charts of returns here.

The Pitfalls of Mobile

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The push for mobile-first makes good sense, but the mobile landscape is fraught with difficulties, as highlighted by Semil Shah in TechCrunch.

Mobile has low barriers to entry, particularly in apps, and a proliferation of aspiring players in most every mobile category.   Reaching scale in mobile is elusive, and many startups might wind up as profitable ongoing ventures, without a huge exit, disappointing investors.

As Shah points out, citing VC Andy Weissman: investors in mobile services and apps may “wait and see” which services are scaling best.

You can read Shah’s full piece here, also crediting Albert Wenger from Union Square Ventures.

Angel Valuation Survey

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The median valuation of tech companies funded pre-revenue is $2.75 million, according to a just released survey of angel groups from Gust. With the costs of starting a tech business falling, this means an entrepreneur can raise $500k and only give up 18% of his company to do so.  With the promise of revenue down the road, and no financial history on which to base a valuation, this seems reasonable.  Every company is of course different, but if an entrepreneur can conserve capital, he or she can retain a large share of the company.  Since I’m often asked about valuation, I’ve posted data from some of the larger angel groups below:

2012 Valuation Survey of Angel Groups  
Median pre-money valuation of pre-revenue companies
Software, Internet, Mobile and telecom deals
$ millions
All Groups:  Median 2.75  
All Groups:  Average 2.96
Selected groups:
Alliance of Angels (Seattle) 0.8
Atlanta Technology Angels 1.8
Robin Hood Ventures (Phila) 2
Vancouver Angels 2
Ohio TechAngels (Columbus) 2.45
New York Angels 2.45
Band of Angels (Silicon Valley) 2.75
Launchpad Angels (Boston) 2.75
Mid-Atlantic Angel Group (Phila) 3
Hub Angels (Boston) 3.13
Golden Seeds (NY, Boston, CA) 3.35
Sand Hill Angels (Silicon Valley) 3.5
Tech Coast Angels (So. CA) 3.6

Angel Investors Earn 2.5x Returns

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Robert Wiltbank, PhD, a professor at Willamette University and a board member of the Angel Resource Institute, studied more than 1,200 exited investments made by angel investors over a 15-year timeframe.

His key findings:

  1. The best estimate of overall angel investor returns from this data is 2.5 times their investment.
  2. This 2.5x return takes a mean time of about four years.
  3. In any one investment the odds of a positive return are less than 50 percent. 
  4. 90 percent of all the cash returns are produced by 10 percent of the exits
  5. Once investors had a portfolio of at least six investments, their median return exceeded 1X.

His summary:  Angel investing “is a “homerun” game like formal venture capital investing. Second, a portfolio of investments, even in angel investing, is a great approach. Third, whenever you’re making risky investments it is a great principle to limit your bet size and make sure that you don’t put too much of your wealth into aggressive positions.”

More from TechCrunch here.

Angels Created 106,400 New Jobs in 2012

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Angel investing continues to grow as an engine for the US economy.  Angel investments created 106,400 new jobs in the first half of 2012, according to UNH’s Center for Venture Research.  27,280 start-ups received funding, up 3.7% from prior year; and 131,145 individual angel investors participated, up 5% from prior year. Total investments were $9.2 billion, up 3.1% over last year.  More here from the Center for Venture Research.

Angel Valuations Inch Up

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How much to Angels typically invest and at what company valuation?  Angel valuations are inching up per the Halo Report for Q2 2012:

  • Company valuations for early stage financing rounds with Angels are $2.7 million in Q2 2012, up from $2.5 million in Q1 (median, pre-money valuations).
  • Typical angel investment rounds total $550,000 for Angel-only rounds and $1.5 million with VC’s involved (these are median values; the mean values are higher at  $1 million and $4 million.
  • And VC’s have Angels co-invest in 72.5% of their deals.
  • And half of Angel  deals are in tech-related fields  (Internet, Software, Mobile, Telecom).

You can download a 16-page pdf of highlights here.

3 Reasons to Look to the Angels for Start-up Funding

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From Inc. Magazine, here are 3 reasons why angel investors can help you build your startup:

  1. Operational Expertise.  Angels with operational experience, especially within your industry, can provide invaluable contacts and advice, and angel investors are almost always current or former industry executives themselves.
  2. Patience.  Angels don’t expect to get their money out within three to five years at some pre-determined rate of return. As long as your company is doing well, most angels are happy to let their investment “ride” for the long haul. For the most part, angels are patient, long-term investors.
  3. Valuation and Ownership. Angels will usually give you a better valuation and financing terms, allowing you to retain more of the equity and board control of your company. 

Read the full piece by Langley Steinert, CarGurus.com founder, here.