Tag Archives: VC

The Facts on Deal Valuation and Structure

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Attention Entrepreneurs:  Investors at different stages have varied interests so you are likely to get different counsel from Big VCs, Big Accelerators, and other Big Shots.

I’ll keep this post brief and fact-based.  Early stage financing has supply and demand, and deal terms and valuation are determined by market factors.  When you determine valuation and deal structure for your company, consider the current data on Angel financing.

66% of Angel financings are done at a pre-money valuation of $4.5 million and under.60% of angel financing is done with Preferred Stock.

The source of this data is the Angel Capital Association’s new Angel Funders Report, dated August 2018 and released October 2018.  Drawn from 432 investment rounds in 2017 across 393 companies totaling $102 million invested.  Companies were located in 36 US States, Canada, and Israel.

So when you set your terms, the closer you can price your deal based on its merits relative to other angel deals getting funded, the faster your funding round will go, and the quicker you can get back to your business fundamentals.

Top 15 New York-Based Venture Capital-Backed Exits 2012 – 2017

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The Top 15 New York-Based Venture Capital-Backed Exits 2012 – 2017

As the NY early stage and VC community grow, so do the number of larger exits.  From CB Insights, here are the top 17 NY VC-backed exits for the past five years, with Yext at number five with its April 13, 2017, IPO.

 

 

The Venture Capital One Pager

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From VC John Backus, here is the Venture Capital One Pager!  A great primer on how the various rounds of financing work together — at least according to the standard playbook.

Big Caveats:  There are other playbooks!  Like the “take no outside capital” playbook, and the “one round and done” playbook.

rosetta_table_original

More info here.

VC Investment in NY Booms in 2013 1Q, up 2x to $715 million

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NY VC Trend 1q2013

VC Investment in NY 2013 1Q more than doubles from 2012 1Q, to $715 million, according to CB Insights.

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.

VC as Psychologist

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Here’s a Washington Post interview with my former Bain colleague (vintage 1980’s!) John Backus, a managing partner at New Atlantic Ventures in VA.

What do VCs actually do for their money?  Backus says:

“We are basically professional guides to the entrepreneur to help them navigate rapidly evolving industries and solve difficult problems,” Backus said. “We’re like their corporate psychologist.”

Read more here.

It’s hard to break out of the pack

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Noted investor Chris Dixon’s recent blog post on the crunch in consumer web start-ups has gotten a lot of notice.  It’s unfortunate that so many start-ups tend to chase the same concept. That’s why, generally, Chris’s points are correct, e.g., you do need 10 million uniques to get anyone to pay attention to you.

But you don’t have to follow the pack. Find a niche segment, where your content had real value.  Don’t jump on the next popular trend, like a new app to figure out what to do tonight. Create a real new idea, and calibrate your own metrics.

“Ten million users is the new one million users.

Entrepreneurs and investors have been enamored with consumer internet startups for the last few years. But there are signs this is ending.

Some observations:

– Thousands of early-stage consumer web/mobile companies were started and funded in last 24 months.

– There are only a few dozen VCs who actively write consumer Series A checks, and those VCs will only do a few deals a year.

– Facebook’s market cap is about half of what most tech investors expected before the IPO.

– A few breakout early-stage consumer hits (Instagram, Pinterest) have reached tens of millions of users in record time.

– Internet users have tens of thousands of services/apps to choose from but limited time and attention…”

Read more here.