Following in the tradition of “Shit Silicon Valley Says” and other Shit ______ Says memes, August Capital’s David Hornick has made “Shit VCs Say.”
There are some gems in here, including: → Read More
Andreessen Horowitz is definitely killing it these days. The unconventional VC firm founded by Marc Andreessen and Ben Horowitz is less than three years old, but just raised its third fund. The amount raised: $1.5 billion. That puts Andreessen Horowitz in the rarified realm of only a handful of VC firms with funds of that size.
And how long did it take to raise all that money? “It took about 3 weeks of actual fundraisng activity,” Horowitz tells me. It took longer to do the actual paperwork—another 6 weeks.
→ Read More
The micro-VCs are growing up. Case in point: Jeff Clavier, who started out as an angel investor backing Web 2.0 companies and then transitioned his portfolio into a more formal venture firm, SoftTech VC. Clavier just finished raising a total of $55 million for SoftTech’s third fund. SoftTech’s main focus is on three areas: mobile, next-generation e-commerce, and cloud-based services. → Read More
Alright, in my last post I argued that bootstrapping is just as over-rated as raising venture capital. But for those who decide to pursue fundraising, here are some things entrepreneurs should avoid when raising capital.
For all of the talk about how much excess capital there is, it’s actually hard to raise capital because very few projects fit the VC profile—even though many VC-funded projects come across as frivolous, me-too projects. → Read More
Last week at Le Web, Alexia interviewed Sean Parker and Shervin Pishevar onstage in what turned out to be one of the most-buzzed about sessions. Here is the full video for your weekend watching pleasure. It’s a great discussion that ranges across the state of startups, venture capital, music, and politics .
Parker bemoans the surplus of venture capital for its effect of diluting the talent in the tech industry, a point he’s made before. “It prevents the aggregation of talent around great ideas,” he says. He emphasizes the need for a great team from the get-go. “People are the greatest asset class,” Pishevar agrees. The conversation quickly turns to Gowalla, which recently was acquired by Facebook, and why it failed to take on Foursquare. “If you don’t fail, you haven’t tried hard enough,” says Pishevar. → Read More
The venture capital industry is going through a ton of disruptions lately. One of the better explanations I’ve heard recently of what is going on comes from Duncan Davidson, a managing partner at Bullpen Capital who gave a great talk on the subject at TechCrunch Tokyo last week. I interviewed him backstage on video, where he summarized his views.
Just as there are now legions of “lean startups” which require less capital to build a product, Davidson argues that a “lean finance model” is also needed → Read More
In Part III of my interview with Accel partner Jim Breyer, we get into the disruptions occurring in the venture capital industry itself with the abundance of angel money and the impact that is having on traditional VC firms. In the video interview above, I ask him whether he thinks there is a Series A Crunch. “I don’t think there is,” he states, echoing what Paul Lee has argued here before. Breyer counters that venture capital is not “uniformly distributed” and there are some markets, such as Brazil, where even seed stage capital is not plentiful enough.
“It is the best time over the last decade that I can think of to be an entrepreneur,” says Breyer. → Read More
In this video interview, I ask VC Jim Breyer what he thinks about the current IPO market and whether he agrees with Steve Case, who argues that we need more IPOs to create more jobs—“90% of job growth is after a company goes public.”
Breyer disagrees with Case that IPOs are the answer. At About the 2:35 mark, he says that the IPO process could be made a little bit easier, but ushering in a flood of IPOs could cause more problems than it solves. ” What I would never want to see is a repeat of when public companies were created twice a day and investors lost 80% of their money,” he cautions. → Read More
A lot has been written about the Series A Crunch. The gist of the argument is that the number of seed financings have gone up (with the advent of incubators such as Y-Combinator, TechStars, and Excelerate, as well as a new generation of Super Angels, who may or may not be hanging out at Bin 38), but the number of Series A financings have remained relatively steady. Ergo, the percentage of companies that can’t raise a Series A must be going up.
So what the hell is really going on? While a lot has been written about the subject, I think the reality is the Series A Crunch is bullshit and people are misreading the signals here. → Read More
As is abundantly clear from all the entrepreneurial activity on display at TechCrunch Disrupt Beijing, China is growing as a startup center. In the third quarter of 2011, $1.3 billion in venture capital poured into China, up 84 percent, according to Dow Jones VentureSource.
At the same time, VC dollars slid 12 percent in Europe to almost exactly the same amount: 951 million Euros or $1.3 billion. (For comparison, U.S. VC dollars rose 29 percent to $8.4 billion in the third quarter). Are we at a crossroads where more venture capital will end up in China than in Europe? → Read More
At the beginning of the year, super investors Ron Conway and Yuri Milner created the controversial Start Fund to invest in every new Y Combinator startup. They offered each YC startup to graduate from Paul Graham’s rigorous selection process $150,000 in an uncapped convertible note with no discount. Some venture capitalists didn’t like the precedent this set. But at least one more big one, Andreessen Horowitz, is jumping on board and joining the Start Fund.
Going forward, Andreessen Horowitz will contribute $50,000 of that $150,000 to each YC startup that chooses to take the deal (and so far, most of them have). “It will start with the next cycle,” Marc Andreessen tells me. With more than 60 startups per class and growing that comes to $3 million in commitments per class for each of the three investment partners in the Start Fund. → Read More
There may or may not be a cash crunch in Silicon Valley, but if you are Vinod Khosla you don’t have to worry about it. His venture firm Khosla Ventures just closed a new $1 billion fund (Khosla Ventures IV), which we first reported was in the works last May. (He raised $1.05 billion, to be exact). His portfolio is half cleantech and half Internet/mobile, and he plans on keeping it that way.
Top tier firms like Khosla Ventures have the luxury of raising huge funds. The limited partners who invest in venture funds are narrowing their investments to the top 20 percent of firms who produce nearly all the profits. “We have generated close to $1 billion in profits,” Khosla tells me, referring to the returns across all of his funds so far. It was only two years ago that he raised $1.1 billion for Khosla Ventures III and a smaller seed fund. “Third-tier VCs are not getting funded,” he notes. “The number of active VCs is actually going down.” → Read More
Everybody knows that when you raise money at a startup your ownership percentage of the company goes down. The goal is to have the value of the startup go up by enough that you own a smaller percentage of a much larger business and therefore your total personal value goes up.
The simplest way to think about this is: If you own 20% of a $2 million company your stake is worth $400,000. If you raise a new round of venture capital (say $2.5 million at a $7.5 million pre-money valuation, which is a $10 million post-money) you get diluted by 25% (2.5m / 10m). So you own 15% of the new company but that 15% is now worth $1.5 million or a gain of $1.1 million.
But understanding how you’re likely to get diluted over time is a more difficult concept. And figuring out how much your equity may be worth over the course of a 5-year stint at a startup is even more complicated. (Infographic after the jump) → Read More
Today at TechCrunch Disrupt, five VCs gathered to talk about the state of investing in Silicon Valley and what skills and qualities make a successful venture capitalist. James Slavet of Greylock, Joe Kraus of Google Ventures, Shervin Pishevar of Menlo Ventures, George Zachary of Charles River Ventures, and Rich Wong of Accel Partners each weighed in on how venture capitalists are trying to make a difference in the lives of startups as well as what the perception of venture capitalists has been traditionally and how that’s changing. → Read More
Editor’s note: Jules Maltz is a General Partner at Institutional Venture Partners (IVP), a late-stage venture capital firm based in Menlo Park. You can follow him on Twitter @julesmaltz.
Whenever I’m about to make a new investment, I always think about the 2×2 matrix I learned from Andy Rachleff, a former partner at Benchmark Capital.
The idea is that if you make a new venture investment (or start a company), you can either be “right” or “wrong” and you can either be “consensus” (following the crowd) or “non-consensus.” Everyone knows that if you’re wrong, you’re not making any money. But the interesting part of the chart above is that being right and consensus isn’t great for your returns either. The big money, as any horse racing handicapper can tell you, comes when you’re right and you don’t follow the crowd. → Read More
Series A financings are on the decline. They peaked at 283 in 2007 and are on pace to barely crack 100[1] this year (all data is from CrunchBase through the end of June—it is imperfect but the best I’ve got, see chart). They’ve also declined in relative terms, representing nearly 40% of all equity financings in 2006, and less than 20% year to date. I believe there are two main reasons for this: 1) the rise of the Series Seed and 2) the ho-hum exit environment since 2008.
That’s why a Business Insider article on Monday titled Venture Capital: No Longer a Business of Small Investments in Early Stage Companies inspired me to dig into the data and see for myself what was going on. VCs are less inclined to lead or participate in follow-on rounds unless the company is a clear winner in its class. Furthermore, VCs have had to support their perceived winners longer because exits have been fewer and farther between. Even with the rise of the Series Seed (the nomenclature of which is not used uniformly), Seed and Series A deals collectively accounted for nearly half of all equity financings in 2006, and now account for less than one third. → Read More
Dow Jones VentureSource released its second quarter numbers for the venture industry today, and there’s a reason they’re not dominating the headlines. They’re pretty boring: Overall investors put $8 billion into 776 deals in the US in the second quarter, a decrease of 5% in terms of invested cash and 2% in terms of deals. The median amount raised per deal was $5.2 million, up from $4.6 million a full year earlier. Yawn, right?
But the fact that the numbers are so unremarkable is what makes them interesting. It reinforces what people like me have been arguing for months: A handful of hot companies does not a bubble make. → Read More
One of my favorite recent blog posts is Seth Godin’s “Getting funded is not the same as succeeding.” Whether or not we’re in a bubble, it’s a sign of the times that this post has to be written in the first place. As Josh Elman tweets, we’ve gone from RIP Good Times to funding a grilled cheese company in less than three years (Sequoia was involved in both interestingly). Instead of focusing on the companies that are creating the most value for their customers, we’re talking about who raised the largest round or who’s part of the billion dollar valuation club.
And this is dangerous. It’s dangerous because we’re celebrating the “success” of fund raisings rather than the success of building truly valuable businesses. → Read More
It seems that Venture investors are none-too-happy with current IPO activity. According to a study sponsored by Deloitte and the National Venture Capital Association released yesterday, over 80 percent of venture capitalists from around the globe believe “that current IPO activity levels in their home countries are too low”. Low enough, in fact, that it has investors worrying over whether or not it can sustain the venture capital industry.
While it seems that investors and VCs tend not to agree on anything (ever?) and it’s thus a bit surprising to see 87 percent of U.S. investors agreeing that IPO activity is too low, it’s also important to keep in mind that this survey was given to investors in the spring. This was before Pandora and LinkedIn went public and bubbletalk was on the tip of everyone’s tongue; in fact, 2011 seems to be a pretty good year for IPOs and investors are encouraging startups to raise. (Before a potential bubble burst, of course.) So then, perhaps VCs should consider IPO rehab for their addictions? What do you think? → Read More
