THE SHIFTING VC 
LANDSCAPE 
Mark Suster - @msuster
2 
To read my full blog post about this 
presentation and watch the video see 
links in description below.
2014 appears to be the most active for LPs 
the since recession 
$23.1 
$34.6 
$36.0 
$29.5 
$12.6 
$19.5 
$24.7 
$20.3 
$...
The Dot Com 
skepticism from 
LPs has finally 
thawed, but 
some things 
have changed…
Seed funds now a well accepted norm (67% 
of all funds). Starting to hear talk of “seed co-investment 
or opportunity fund...
But overall LP capital has continued to 
concentrated in later-stage funds with 66% 
of all money in big funds 
Share of V...
Traditional VC is what has been impacted 
the most decreased in dollars and funds 
44% 
# of Funds (%) 
$100M - $500M 
33%...
Some obvious factors driving later stage LP 
investment 
8 
q Pension funds & other large asset managers 
need to write b...
The market is actually bifurcating 
9
The structure of the startup / venture 
market has started to change 
10 
1. Startups staying private longer prior to IPO ...
Companies are raising larger amounts of 
capital before going public 
$49 
Median amount raised prior to IPO ($M) 
$43 
So...
Capital sources for late-stage private 
companies up dramatically 
• Hedge funds 
• Mutual funds 
Traditional 
VC investor...
IPOs are happening, they’re just being 
delayed 
2 3 2 2 2 1 
Source: NVCA 2014 Yearbook 13 - Thomson Reuters 
21 
17 
9 1...
So private investors capture more value, 
encouraging greater pre-IPO funding. Early 
investors want to capture pro-rata 
...
But this is not 2000. 
15 
This is not 2000
The Kauffman Report was wrong. It’s 
morning in VC 
50x more internet users: 2.4B in 2012, 44M in 1995 
120x faster online...
Public company startups are significantly 
more mature than their 1.0 counterparts. 
Years to IPO 
(from 1st financing) 
3...
But late-stage private financing still 
produces some lofty late-stage valuations 
When a concept works the competition is...
Thus late-stage valuations have risen fastest 
in past 4 years. That’s the trend to watch 
carefully 
Median Pre-Money Val...
THE SHIFTING VC 
LANDSCAPE 
Mark Suster - @msuster
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The Changing Structure of the Venture Capital Industry

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I presented this deck at the 2014 PreMoney Conference. I wrote a blog post here that goes into more detail: http://bit.ly/ChangingVC

The video of the presentation I gave is here: http://youtu.be/5MClCBUjbbE

The VC industry is changing. The press has focused on the wrong story - crowd funding. The bigger story is the shift from public financing to private financing and the bifurcation of the venture industry. This presentation examines the case.

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The Changing Structure of the Venture Capital Industry

  1. THE SHIFTING VC LANDSCAPE Mark Suster - @msuster
  2. 2 To read my full blog post about this presentation and watch the video see links in description below.
  3. 2014 appears to be the most active for LPs the since recession $23.1 $34.6 $36.0 $29.5 $12.6 $19.5 $24.7 $20.3 $18.4 $40 $35 $30 $25 $20 $15 $10 $5 Source: 2Q 2014 Pitchbook US Venture Industry Datasheet . Annualized 2014 fundraising based on 49 funds closed in Q1. PwC “Asset 3 Management 2020” $8.8 159 183 164 171 102 121 97 132 147 ~200 250 200 150 100 50 0 $- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est Capital Raised ($B) # of Funds Closed Q1
  4. The Dot Com skepticism from LPs has finally thawed, but some things have changed…
  5. Seed funds now a well accepted norm (67% of all funds). Starting to hear talk of “seed co-investment or opportunity funds” 33% Share of VC funds raised < $50M 40% *As of Q1 2014. Source; Q2 2014 PitchBook US Venture 5 Industry Data Sheet 54% 67% 2008 2010 2012 2014* Represents 6% of total $ raised
  6. But overall LP capital has continued to concentrated in later-stage funds with 66% of all money in big funds Share of VC $ funds raised > $500M 39% 43% *As of Q1 2014. Source; Q2 2014 PitchBook US Venture 6 Industry Data Sheet 59% 66% 2008 2010 2012 2014*
  7. Traditional VC is what has been impacted the most decreased in dollars and funds 44% # of Funds (%) $100M - $500M 33% 23% 18% 2008 2010 2012 2014* 53% $ Funds Raised (%) $100M - $500M *As of Q1 2014. Source; Q2 2014 PitchBook US Venture Industry Data 7 Sheet, Atelier Advisors 45% 32% 26% 2008 2010 2012 2014*
  8. Some obvious factors driving later stage LP investment 8 q Pension funds & other large asset managers need to write big checks q FoFs need to show they have access to the top historical winners q Continued perception / narrative of “the best and the rest” But this is too simplistic
  9. The market is actually bifurcating 9
  10. The structure of the startup / venture market has started to change 10 1. Startups staying private longer prior to IPO 2. More value captured by private investors 3. VC funds thus raising more growth & opportunity funds to back pro-rata in winners
  11. Companies are raising larger amounts of capital before going public $49 Median amount raised prior to IPO ($M) $43 Source: Dow Jones Venture 11 Source 2014 via EY $72 $83 $78 $101 2008 2009 2010 2011 2012 2013
  12. Capital sources for late-stage private companies up dramatically • Hedge funds • Mutual funds Traditional VC investors 12 Source: CB Insights Traditional public investors • Growth funds • Opportunity funds Moving Later Moving Earlier New Corporate VC Entrants • Google • Rakuten • Alibaba
  13. IPOs are happening, they’re just being delayed 2 3 2 2 2 1 Source: NVCA 2014 Yearbook 13 - Thomson Reuters 21 17 9 13 2008 2009 2010 2011 2012 2013 No. of IPOs with market cap > $1B No. of IPOs with market cap > $10B
  14. So private investors capture more value, encouraging greater pre-IPO funding. Early investors want to capture pro-rata Current market cap: $125B+ $150B+ $340B+ $0.2 $0.4 $0.8 $4.3 $18 $104 $150+ Cisco Amazon Microsoft LinkedIn Twitter FB Alibaba (est) Market Capitalization at IPO ($B) Previous Tech Cycle New Tech Cycle Source: Quigley Report 14 2011, FLAG Capital
  15. But this is not 2000. 15 This is not 2000
  16. The Kauffman Report was wrong. It’s morning in VC 50x more internet users: 2.4B in 2012, 44M in 1995 120x faster online speeds: 6.7 mbps US average today vs. 56k modems People are mobile: Personal, location aware. US has 164M smartphone users & 119M tablet users in 2014. People are socially connected: 1.3B+ MAU on FB, 250M+ on TWTR, 300M+ on LNKD. Credit cards on file: 1B+ digital shoppers and $1.5T ecommerce spend globally. $35B Apple app store in 2014 Sources: U.S. Bureau of the Census, World Bank. As of Q2 June 2012. Akamai. 2014 Statista forecasts, 16 : eMarketer, WSJ
  17. Public company startups are significantly more mature than their 1.0 counterparts. Years to IPO (from 1st financing) 3.1 7.4 IPO in '00 IPO in '13 Revenue ($M) $35 $102 IPO in '00-01 IPO in '13-'14 Valuation/Revenue 13.3x Multiple Source: Age from NVCA 2014 Yearbook – Thomson Retuers, Revenue & Multiples from Pitchbook Tech Valuations Presentation 17 (June 2014) 5.3x IPO in '00-01 IPO in '13-'14
  18. But late-stage private financing still produces some lofty late-stage valuations When a concept works the competition is fierce More seed rounds as costs decline & sources of capital increase Seed Stage Early Stage Later Stage Source: Graphic 18 from Bullpen Capital Larger later stage rounds after Traditional VC validation Today’s VC
  19. Thus late-stage valuations have risen fastest in past 4 years. That’s the trend to watch carefully Median Pre-Money Valuation ($M) $3.2 $6.7 $19.9 $1,000 $100 $10 2010 to 2014 CAGR Source: Source; Q2 2014 PitchBook US Venture Industry Data Sheet, 19 * As of Q1 2014 $37.1 $66.1 $5.9 $11.3 $28.1 $62.3 $155.0 $1 17% 14% 9% 14% 24% Seed Series A Series B Series C Series D+ 2014* 2010
  20. THE SHIFTING VC LANDSCAPE Mark Suster - @msuster

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