1.

Vator Venture Shift, July 2013
Venture Outlook

2.

Series A Crunch
It’s real, it’s here!

3.
Seed Funding vs. Series A
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012
Seed
Series A
Source: Cbinsight as reported by Dan Primack
#Deals
This is how the data is reported …

4.
SeriesA Cliff
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012 2013
Seed
Series A
It matches until …
Source: Cbinsight as reported by Dan Primack
#Deals
The
Cliff
This is the relevant comparison …
Shift seed forward a year…

5.
The FaceplantTrainWreck!
Web 2.0 Era
IPOs
FOMO
chills
Series A
slows down
Seed
triage, bridgi
ng
Angels fear
to tread
“Faceplant” Accelerators cut
back on class
sizes
Q2-2012 Q3-2012 Q4-2012 Q1-2013 Q2-2013

6.
Down Rounds Spiked After Faceplant
Source: Fenwick & West
Faceplant
Reaction (Ouch!)

7.
TraditionalVC Flat So Far in 2013

8.
Pitchbook Shows a Decided Downtrend

9.
SeriesA Flat So Far in 2013
Slight Uptick
(222 in
Q1, 246 in
Q2)
Seasonally
Expected

10.
How Many Seed DealsWill Be Orphaned?

11.
“Getting to Series A” is Fading as the Goal
Seed Follow-On
Financing:
Traditional VC
A Round
“Bullpen” Style
Follow-On Seed
Vintage 2010, in 2011 45% 12%
Vintage 2011, in 2012 27% 23%
The Crunch
The Alternative
Source: Fenwick & West 2012 VC Survey

12.

VC Industry
Major ongoing disruption
“The era of the
gentleman VC
is over”

13.
VC Returns Sucked for a Decade

14.
VC Industry Consolidated
33 54 77
118
79 81 86 83 6826
61
138
282
136 155
175
148
122
0
5
20
143
27
44
51
36
42
0
100
200
300
400
500
600
1993 1995 1998 2000 2003 2005 2008 2010 2013
$100M+
$20-100M
$10-20M
Source: Thompson Reuters; Menlo Ventures Analysis
Active Venture Funds
(Active = Over $1m in at least 5 deals)

15.
“Lean” Disrupted theVenture Model
Cloud
storage, incubat
ors
Open source
libraries, commoditized
hardware
Oracle license, large
salaries, expensive machines

16.
Lean Enabled “Option-Buying”VCs
 Old Model: “life cycle” VC
 New Model: option buying
 Smaller fund
 Hyper-active pace
 Small amounts at early stages
 Fail fast – start something better!
 Oversized reserves –
double down on winners!

17.
And a Much Faster Investment Pace
(40 per year vs. traditional venture 4-5)
Option Buying Pace

18.
Smaller Deal Size Pushed BigVC Later
Source: PwC Q3 survey as reported by Fenwick & West

19.
Opening the Door to Funding Alternatives
 Accelerators
 Super-Angels
 Micro-VCs
 Crowd-funding
 Bullpen
 Secondary Markets
>
5000
deals
per
year

20.
Bullpen Formed as an Alternative to the SeriesA
Bullpen saw disruption coming:
 Bullpen GPs were active
angels & LPs in seed funds
like First Round Capital
 The need: a seed follow-on
round, below the A
 The result: bypassing the A
with a “shovel-in” round
 Bullpen acknowledged as
Series A Crunch thought
leader

21.

Prognosis
New Wave of IPOs Coming!
“FOMO = Fear
Of Missing Out”

22.
Venture Returns Improving
Index returns:
 10 yr: 5.3%
 3 yrs: 12.7%
Median returns:
 10 yr: (4.6%)
Source: Cambridge Associates; NVCA

23.
Venture Liquidity Ratio Improving
(Liquidity Ratio = Money Out vs. Money In)
Source: Menlo Ventures

24.
AnotherTech Bubble is Brewing

25.
Tech M&AValues Increasing
Year of Tech M&A Number Average Size ($MM)
2011 75 $512
2012 94 $717
Source: Tower Watson Quarterly Deal Performance Monitor
Key Exits in 2012
• Kayak $1.8B
• Kenexa $1.3B
• Yammer $1.2B
• Meraki $1.2B

26.
Tech IPOs Increased in Q2

27.
WSJ Headline:The NewWave of IPOs

28.
2013 IPO Candidates

29.

Venture Disruption
The Revolution is Broad-Based

30.
VC Disruption is Part of the LargerTrend
 The Revolution Will Not Be Categorized
 Disruptive Deals Replace the Incumbents
vs. Facebook vs. Hotels vs. PayPal

31.
What’s Next??
 Vertically-oriented incubators
 New instruments: capped
converts, convertible equity
 Secondary liquidity
 Crowd-funding
 … who knows what’s next …
Its the easiest time ever to start a company … but
one of the hardest times ever to scale a winner!