Skip to main content

The MoneyTree Shook - Q4 2006




Colleague Mark Radcliffe was kind enough to invite me to today's Shaking the MoneyTreeTM event held at the DLA Piper offices in East Palo Alto. PricewaterhouseCoopers and the NVCA put out the report quarterly, based on data provided by Thomson Financial. The report is in its 12th year. The Master of Ceremonies for this event was Steve Bengston of PwC, who did a very nice job talking to the current trends in the Venture Capital industry.

I don't have a pointer to the slides presented, but you can find the Q4 2006 Press Release here.

Panel attendees (who also did a very nice job and kept the discussion lively) included:

Some highlights that I found particularly interesting include:

  • 2006 VC investments of $25.5B ranked it as fourth largest year ever (beat out only by 1999, 2000, and 2001).

  • 1980 total VC was just $600M - compare that to 2006, where a single investor, Intel, made an investment of more than that amount in a single deal!

  • Called this the "Decade of Life Science and SoCal".

  • My previous home state of Colorado had a tough Q4 in terms of deals, withh only 16 deals, down 70.8% from the previous quarter (on the year they were down 4.9% from 2005).

  • Current VC investment levels "feel" like what it was like in 1996-1998, depending on the metric you dig into (e.g., Q4 2006 Series A dollars invested were higher than the Q1 1999 Series A numbers for Silicon Valley, but comparing # of deals feels more like 1997).

  • The money is slowly moving to Biotechnology and Medical Devices. While Software investments continue to lead, Biotechnology is right behind, and if you combine Biotech and Medical Devices, they exceed Software by some 50% margin.

  • "About one-third of the money is going into Life Science". Good thing I'm invested in 5AM Ventures!

  • First investments, or "Series A", used to be exclusively the domain of Seed-Stage or Early-Stage companies. Today, we find about 30% of Series A dollars going into Expansion-Stage companies. This is a notable change from the VC investments in days gone past.

  • Early-Stage companies are getting roughly $7-9M Pre-Money valuations, which seems about the right number to me.

  • However, what's interesting about the valuations is that the Later-Stage companies are seeing Pre-Money valuations of $80-90M. That's hard to reconcile with the fact that the average M&A exit valuation for VC-backed companies is just north of those numbers. I.e., lots of Later-Stage VC investors are making poor deals/not making much money on each deal. This is also a more recent development in the industry.

  • Most VCs are "Early-Stage" because that's where the money is, historically. Early-Stage still leads the 20-year return numbers over pretty much everybody else (Later-Stage, Buyouts, Mezzanine, etc). However, returns of late for Earl-Stage have been pretty crappy. Personally, I'm an Early-Stage guy and an Early-Stage investor. I agree that it is the best place to get the best returns (and the best investors will prove that out way beyond what the "averages" in these reports show).

  • "Overhang continues to grow" - i.e., there's plenty of money out there for the best companies. Raising money should not be a problem. If it is, you've probably got a fundamental problem with your business.

  • Advertising dollars to Internet/Mobile is currently about 5%. However, we spend about 20% of our time online and mobile. I.e., massive amounts of ad money will be flowing into these spaces, enough to support 4 more Google's in the next 10 years, perhaps. Lots of opportunity.

  • Interestingly, 13% of US marriages in 2005 were from couples that met online! That's an amazing amount of growth. I met my fiancĂ©e online as well!

  • Average life of an S&P 500 Company in 1938: 100 years. Today: Just 20 years.

  • 50% of VC General Partners will be gone in the next 5 years. If you are a VC and are reading this, I hope you are working on your next gig as we speak. That's a lot of turnover.

  • Lots of discussion about VC in China & India, and the need for startup companies to go global much sooner than they used to (for both outsourcing as well as to get access to humongous new markets). India has 300M product-consuming middle-class families, for example. Asia gets mobile phones and being continuously connected through their devices (PC at home is less important than mobile access everywhere).

  • Conversation even strayed to cover VC vs PE/Buyout guys vs Hedge folks.


All in all, a very good use of a couple hours. Many thanks to PwC and the panel for their thoughts.

Tags: , , , , , , , , ,

Comments

Popular posts from this blog

Kernel-based Virtual Machine hits Linux

Many congratulations to my good friend Moshe Bar and his team over at (stealth-mode startup) Qumranet . Techworld reports that the KVM (Kernel-based Virtual Machine) project has been accepted into the 2.6.20 version of the Linux kernel distribution. KVM is an Open Source kernel driver that basically allows a Linux kernel to host virtual machines, as plain old Linux processes, that can run Linux or Windows (or other x86-based operating systems). It runs only on hardware that support Intel's VT instruction set (which is fine) and will soon support the AMD-V instruction set as well. This is cool for a number of reasons. It's Open Source, released under the GPL. It basically turns the Linux that we all know and love into a "hypervisor". Linux-as-hypervisor makes sense because Linux already knows how to manage devices, memory, processes, multi-cores, etc. VMware ESX is, essentially, a "hypervisor" - a small kernel, built on Linux as it turns out, that

Bill Coleman Joins 3tera Advisory Board

I think this move surprised a number of people, since Bill recently wrapped up Cassatt Corproation, getting the technology and people  acquired by Computer Associates . However, I was not surprised at all. The announcement, via  3tera Welcomes Bill Coleman : You may or may not have seen the recent press realease.  Bill Coleman, IT/Silicon Valley luminary, Founder and CEO of BEA Systems, has joined 3Tera’s Advisory Board. Yes, this alone is a great testimonial to what we have accomplished in our field.  Getting dignitaries such as Bill does not come easy.  But here’s the best part - this has a lot more than just marquee value and I doubt that Bill would have joined us if that was the case.  Bill, especially since his most recent stint as Founder and CEO of Cassatt Systems, is an extremely knowledgeable visionary in the area of utility and Cloud Computing; and, data center automation. So, Bill will be extremely valuable, reviewing and tweaking both our business plans and techno

Big In Japan Open Sources Their Ruby On Rails Tools

The kind folks over at Big In Japan have graciously decided to Open Source the code they used to build their demo web sites . It's all Ruby on Rails code, and it's being released with a GPL license. The code trees being made available include: elfURL ~ URL Shortner FeedVault ~ OPML file storage FrankenFeed ~ RSS feed merger InstantFeed ~ RSS feeds via email QwikPing ~ Ping Server SocialMail ~ RSS via email Very cool. I just love the Open Source community . I have actually been writing some code of late, and it's great to have some reference code to check out. Not sure if I'm going to go with Ruby on Rails yet, however. And, for the record. I have no idea if this is big in Japan. Tags: Open Source , GPL , Ruby On Rails , Big In Japan , Brian Berliner , brianberliner