State Of VC 2016 Hawaii Focus

State of Venture Capital
& Angel Markets 2016
STARTUP
CAPITAL VENTURES

The Venture Capital Funding Cycle

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2

VCs
Invest In
Startups
Startups
Exit Via
M&A or
IPO
VCs
return
capital to
LPs
LPs
Invest In
VCs
Silicon Valley Honolulu

Significant Changes From Last Year &
Curves Ahead
•  Strong LP investment in VC
•  Early stage venture investment declining
•  Valuations declining in all segments
•  Silicon Valley & software still dominate
•  Strongest angel market in 15 years
•  Angel investing is out of sync. with VC
•  Exit market in a funk due to macro issues

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3

Agenda
LP Investments In VC
VC Investing Activity
Angel, Accelerator & Crowdfunding
Exit Activity
Conclusions

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4

Venture Fundraising Market Is Booming

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5

.com boom
& bust
Source: Thomson Reuters / PwC / NVCA

Number Of VC Funds Raised Is Strong...
Silicon Valley Honolulu Page 6

• VC Returns Continue to Outperform
• Public MarketsVenture Returns Continue To Exceed
Public Market Returns
Source: NVCA, Cambridge Associates

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7

Agenda

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8

Venture Investing Activity
Exit Activity
Conclusions

$59B Of Venture Capital Invested In 2015
Is Highest Since 2000

However Early Stage Deals In Decline
Since Last Year
Source: Pitchbook

Deal Sizes Are Close To .com Highs

Silicon Valley Dominates US VC With CA
Making Up Almost 60% of Total $
LA / Orange County

Hawaii Rebooting After Act 221 Era
< Act 221 Era >

Software Is Eating The $ While Consumer
Products Bumped Up

Valuations (All Rounds Combined)
Dropped Significantly In Q4
Source: Dow Jones VentureSource

Round To Round Price Growth Is Falling
x
Note: one Series B deal had a price increase of over 3,000%. Excluding this
datapoint, the price increase is 132% marked as “x”
Source: Fenwick

But Round to Round Price Growth
Is Healthy Vs. The Long Run*
Source: Fenwick
* All series combined

Intriguingly, Down-Rounds Are Declining
(But Protective Provisions Increasing)
Source: Fenwick

VC Is Correcting From Highest Level Of
Funding Since .com era
Caution is the watch word
•  Exit markets are weak & IPOs are closed
•  Valuations are normalizing from unusual highs
•  Good companies will get funded and get exits
•  Most funded companies have revenue and growth
•  Investing sectors are more tech. heavy (e.g.
software, cloud) vs. internet and media
•  Business models are more sophisticated AND
more capital-efficient

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19

Agenda

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20

Exit Activity
Conclusions

Technology Angel Funding Strong But
Disconnected From Venture
Angel funding at highest levels in years
•  $1.65B invested in 870 deals
Deal size and valuations strong but also falling
But disconnected from venture capital
•  Investing in different sectors than VC
•  Most active angel syndicates are outside major
VC markets

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21

Crowdfunding Industry Still Dominated By
Project & Lending Sectors
Project funding (e.g. Kickstarter: $2.2B funded to
date) and lending (e.g. Lending Club) dominate
Angel.co is largest equity funder at $160M in 2015
•  Evolving into a fund / fund-of-funds
SEC unaccredited investor equity crowdfunding
regulations finally clarified
•  Still nascent with no dominant platform yet

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Tech. Angel Round Size
At All Time High
Source: ARI Halo Report

Tech. Angel Valuations At All Time High
(2013 Median Was $2.5M)
2015

Tech. Angel Dollars More Democratic Than
CA-Centric Venture Capital

Angel Dollars Are Less Software & More
Healthcare, Commercial & Other Than VC

Why Are Tech. Angels Investing
Differently Than Venture?
Many possibilities or combinations
•  Investing in concepts angels understand
•  Investing proportional to applicant pool
•  Angels unaware of VC funding patterns
•  News making consumer tech. IPOs (FB,
TWTR, STRP) create observational bias
•  ?

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Agenda
Exit Activity
Conclusions

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28

Macro Risk Factors Casting A Shadow Over
Exit Markets
Public markets are nervous and flat / down
Numerous macro risk factors
•  China debt & growth issues (ongoing)
•  Low oil prices hurting economies
•  Brexit risk (June 23)
•  US Presidential election (November 8)
•  Russian aggression

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29

Venture M&A Market Is Off Highs And
Venture IPO Market Was Zero Last Quarter

FB acquisition of
WhatsApp for
$19.5BN
VC-backed Exit Valuations
Are Also Down

Agenda
Exit Activity
Conclusions

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32

VCs Invested
$59B In
Portfolio
~$90B In
Venture Exits
(IPO + M&A)
LPs
Invested
$20B In VCs
VCs Invested More In Startups Than LPs
Invested Back Into VC In 2015
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33

Sources: NVCA, Thomson Reuters, Cambridge
LP investment strengthening which is a good sign

Better Angel & VC Investing Synchronicity
Could Improve Angel Returns
Startups and angels are dependent upon
follow-on venture funding
Angel investing patterns do not appear to
influence VC investing patterns
VCs are focused on investing in active exit
markets

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What About Hawaii?
SCV is tracking 150 Hawaii startups from concept to near venture ready
•  ~8 Companies could be close (but as always, not all will make it)
Hawaii is 0.3% of US population so we believe there is long-run potential
for 5-10 fundable deals / year
•  State is doing the right things to reboot ecosystem after 221
•  Potential for significant & sustainable high-wage job growth
Vertical experience is key to world-class startups: Need more
startups from Hawaii’s centers of excellence & more engagement from
these corporate leaders
•  Energy, agriculture, travel & tourism, healthcare IT, dual use (i.e.
cybersecurity, networking)

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State Of VC 2016 Hawaii Focus

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