4q 2015 - wsgr

4Q 2015

Women-founded cos. raise 14% of VC investedPAGE 9»

PAGE 16: F UNDR AISING DROPS PAGE 18: 3Q 20 15 L E AGUE TABL E S

3Q records $14.1B invested at the late stagePAGE 8»

Q&A: Lightspeed partnerWill KohlerPAGE 11»

S P O N S O R E D B Y

CONTENTSIntroduction

Overview

Angel/Seed

Early Stage

Late Stage

Women Founders

Activity by Sector

Q&A: Lightspeed Venture Partners

Exits Overview

Exits by Type

Exit Trends

Fundraising Overview

League Tables

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10111213

14-1516-17

18

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2 PITCHBOOK 4Q 2015

U.S . VENTURE INDUSTRY REPORT

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mailto:[email protected]



IntroductionMany interesting trends have emerged in the U.S. venture industry over the past few years. Analyzed

nearly to the point of exhaustion, the “unicorn” phenomenon—the boom in the number of venture-backed companies valued at $1 billion or more, coined by Aileen Lee of Cowboy Ventures—is probably the best known. The unicorn club is merely the sensationalized crest of an immense wave of venture capital that has flooded startups in the late stage of development over the past few years. Drivers of the wave are multiple and interwoven: a sustained bull run in public markets; persistently low interest rates; the JOBS Act; new, nontraditional investors entering venture rounds; rapid advances in key sectors enabling lower launch costs, etc. We’ve covered all of these comprehensively across multiple publications, even dedicating one entire report to VC-backed unicorns exclusively.

When numbers for the third quarter of 2015 came rolling in, it became clear that it was time to take a closer look at exit activity. U.S. VC is not exactly undergoing a slump, although the overall number of rounds has plunged over the past few quarters. Capital invested escalated yet again in 3Q 2015 at $21.6 billion, even eclipsing the massive sums seen in 2Q, so a slump doesn’t seem exactly the right term. Rather, it’s an alarming lack in the spread of the flow of

capital, with many late-stage companies attracting a disproportionate share of overall venture funding—a rich-get-richer effect, in some cases, which could signal the approach of a peak in the cycle, especially as early stage numbers are sliding considerably. As these companies tend to be older and at a point where, in the past, investors have begun pressuring for an exit, it seemed timely to look more closely

at whether historical exit data suggests liquidity on a sufficient scale is achievable. Consequently we expanded our exits section considerably, analyzing the percentages of companies that go public by amount of capital raised,

as well as the acquisitions of the most prolific startup buyers, such as Google and Twitter.

We also sat down with Will Kohler, partner at Lightspeed Venture Partners—sponsor of this report—to talk about a variety of topics; we also included a special insert of content we are still developing, covering women in venture capital. For this report, it seemed apt to include a brief sample of broader datasets covering venture funding of women-founded companies, as well as a few other snippets.

We hope this report helps inform your decision-making process in the quarters ahead. If you have any questions, comments or suggestions, please contact us at [email protected].

Is the peak of the venture cycle

approaching?

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OverviewU.S. VC ACTIVITY BY QUARTER

The gradual diminishing in U.S. venture activity

accelerated into a plummet in the third quarter of 2015. At 1,444 completed financings, total round count is down 22% quarter-on-quarter (QoQ) and 34% compared to 3Q 2014. In fact, the number of financings hasn’t been this low in a given quarter since 2Q 2011. Yearly numbers look somewhat better, with the number of financings breaking 5,000 for 2015 to date, but compared to 2013 and 2014, the decline is still evident.

It’s easy to see the drivers of that decline when looking at the levels of round sizes and valuations, both of which are implied by the totals of capital invested. Our most recent VC Valuations & Trends report saw median valuations hit new records across all stages, with Series D or later achieving a staggering $184 million median pre-money valuation and Series B no less than $41 million.

Venture activity in the third quarter of 2015 was down 36% from a peak of 2,269 rounds in 1Q 2014.

Source: PitchBook

U.S. VC ACTIVITY BY YEAR

Source: PitchBook

Note: In recent months, we have significantly expanded our coverage of early stage activity. In addition, we expanded our coverage of angel/seed activity to include investments in any innovative, early stage companies. We previously capped our methodology at $500,000 per round. We have lifted that cap in order to capture everything that appears to be an early stage investment.

$28

$34

$36

$26

$29

$41

$39

$43

$66

$60

3,0663,988

4,359

4,017

4,766

5,991

7,2658,116

8,661

5,162

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

$0

$10

$20

$30

$40

$50

$60

$70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Capital Invested ($B)

# of Deals Closed

*As of 9/30/2015

4 PITCHBOOK 4Q 2015


1,020 1,0081,186

1,148

1,571 1,496

1,933

1,759

2,050 2,022

2,269 2,201

1,866

1,444

0

500

1,000

1,500

2,000

2,500

$0

$5

$10

$15

$20

$25

1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q

2009 2010 2011 2012 2013 2014 2015Capital Invested ($B) # of Deals Closed Angel/Seed Early VC Late VC

http://pitchbook.com/2H2015_VC_Valuations_Trends_Report.html



U.S. VC ACTIVITY (#) BY STAGE AND YEAR

FIRST FINANCINGS BY YEAR (U.S.)

Even if the drop in the overall number of financings is steepening, dollars invested are still flowing so strongly the narrowing of the VC funnel is becoming more apparent. As the breadth of activity compresses to favor the proportion of late-stage rounds, the stream of capital has intensified. The herd of heavily capitalized, mature companies is steadily growing. In addition, a fair amount of late-stage money goes toward re-upping the ante in companies like Domo that raised large amounts just last year. Such follow-on financings imply that many are making a push for maximum growth, attempting to sustain momentum and transform paper gains into real value. Whether it is doable will largely be seen on a case-by-case basis, but we keep hearing of apprehension across the industry that if the tide of capital recedes, many are ill-equipped to cope.

What this sustained push at the late stage signals for the venture industry as a whole is a different matter. The number of first financings is considerably off the tallies of the last three years, even if capital invested is strong. As a thermometer of the VC industry, that drop suggests caution is manifesting more often. All the value creation and massive sums invested have been private, so, unlike the tech bubble, a deflation will mainly hurt the high-flying, least-prepared companies and their investors and employees. VCs know this all too well. Accordingly, they are beginning to pull back in the number of financings, if not just yet closing off the spigot of late-stage capital, although it’s hard to see that continuing to flow so heavily for much longer.

U.S. VC ACTIVITY (#) BY STAGE AND QUARTER

Source: PitchBook

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Angel/Seed Early VC Late VC

2,269

1,768

1,125

Source: PitchBook*As of 9/30/2015

0% 20% 40% 60% 80% 100%

1Q

3Q

1Q

3Q

1Q

3Q

2013

2014

2015

Angel/Seed Early VC Late VC

2Q

2Q

2Q

2Q

4Q

4Q

$5 $5 $6 $6 $4 $4 $6 $7 $6 $7 $5

9731,157

1,539 1,568

1,409

1,742

2,461

3,107 3,074

2,967

1,459

0

500

1,000

1,500

2,000

2,500

3,000

3,500

$0

$1

$2

$3

$4

$5

$6

$7

$8

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Capital Invested ($B)

# of Deals Closed

Source: PitchBook*As of 9/30/2015. First financing is tracked as the first outside funding a company receives.

5 PITCHBOOK 4Q 2015


Angel/SeedU.S. ANGEL/SEED ACTIVITY BY QUARTER

Source: PitchBook

Source: PitchBook

ANGEL/SEED $ INVESTED BY ROUND SIZEAs investors grow warier of the rising temperature in

the VC ecosystem, the count of angel/seed financings has fallen dramatically. The risks are greatest at this stage, rendering the type of round size inflation evident in the chart to the right less justifiable. In light of that, it is unsurprising that the 577 completed angel/seed financings in 3Q represents a 34% drop from 2Q numbers. What is surprising is that capital invested is still lofty at close to $1.7 billion. Investors are still willing to cut sizable checks, with well over half of all angel/seed capital invested in rounds worth $5 million or more. Part of that is due to the founders that are currently fundraising are adapting to today’s venture climate and asking for enough capital to reach the metrics Series A investors now require. To produce significant growth nowadays takes a lot of cash, given the level of competition, even if other key costs have fallen. Consequently,

angel/seed investors are clearly growing more selective, judging by the sharp decrease in financings, but they are still willing to make hefty bets for now at least. This could bode well for the industry

and innovation in the U.S. in general down the road, as firms are willing to continue funding even with the likelihood of a potential correction downstream and in public markets looming.

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$297

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01

$474

$451

$410

$596

$661

$697

$847

$702

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$814

$982

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81

$1,2

20

$1,1

88

$1,9

45

$1,5

96

$1,7

57

$2,0

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$1,6

65

301

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503

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882

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870

577

0

200

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$0

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$1,000

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1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2010 2011 2012 2013 2014 2015

Capital Invested ($M) # of Deals Closed

0%

10%

20%

30%

40%

50%

60%

70%

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90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Under $500K $500K-$1M $1M-$5M $5M+

*As of 9/30/2015

6 PITCHBOOK 4Q 2015


Early Stage

Early-stage investments in 3Q fell by almost 20% QoQ,

hitting the lowest quarterly total in more than five years. Capital invested remained very high, however, with the $5.9 billion invested trailing only the $6.7 billion in 2Q, highlighting the ongoing inflation of early-stage round sizes. Through the end of September, 50% of all capital invested this year has been in deals of $25 million or more in size—the highest percentage seen to date. In 2013 and 2014, the share of capital invested in $25 million+ deals never eclipsed 40%, only approaching that proportion in one quarter, but this year is clearly a different story.

The rise in valuations across all stages, declining deal counts and the elevation in capital invested all signal that early-stage VC is moving into even riskier territory than normal. More than 43% of all early-stage deals made in 3Q were

Source: PitchBook

Source: PitchBook

U.S. EARLY STAGE ACTIVITY BY QUARTER

$5 million or more in size. Cries over a possible valuation bubble may encourage caution regarding deal sizes, though the pace could stay intense as founders vie for

as much capital as possible and plenty of early-stage funds have been raised. Over 6,000 angel/seed fundings have occurred since the start of 2014, after all.

EARLY STAGE $ INVESTED BY ROUND SIZE

$3.0

$2.6

$2.8

$2.5

$3.4

$2.9

$3.5

$3.7

$3.0

$4.0

$3.0

$3.0

$3.3

$3.7

$3.6

$4.5

$4.7

$5.4

$5.2

$4.7

$5.3

$6.7

$5.9

532 547

517 536

659

578

621615

729 725

655 656

673738

705

738793 810

754685

628632

508

0

100

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600

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$0

$1

$2

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2010 2011 2012 2013 2014 2015

Capital Invested ($B) # of Deals Closed

0%

10%

20%

30%

40%

50%

60%

70%

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90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Under $500K $500K-$1M $1M-$5M $5M-$10M $10M-$25M $25M+

*As of 9/30/2015

7 PITCHBOOK 4Q 2015


At this point, context bias comes into play when analyzing

the sheer flood of late-stage dollars. In light of three recent quarters clearing the $10 billion threshold, the $14.1 billion capital invested at the late stage in the third quarter may not seem quite as huge. But that sum is about double any quarterly total from 2010 to 2013. Adding up quarterly sums, we arrive at about $70.2 billion total poured into late-stage rounds since 2Q 2014. The number of late rounds has declined, falling to levels last seen prior to most of 2011, but capital invested roared ahead regardless. Over 80% of capital invested at the late stage in 2015 has been in rounds of $25 million or more, at least 20% above historical norms—excepting 2014.

These numbers are hard to examine without a few warning bells going off. It’s worth reiterating that many nontraditional venture firms are involved and some of these heavily financed companies have achieved impressive growth.

Source: PitchBook

Source: PitchBook

Late StageU.S. LATE STAGE ACTIVITY BY QUARTER

LATE STAGE $ INVESTED BY ROUND SIZE

Others haven’t—as many have pointed out, unit economics are a problem. How patient investors will be as time wears on is a question that will remain. Venture capitalists can afford to be patient for a time,

although not that long, given it’s the late stage. As for nontraditional venture investors, they often do not need nearly as impressive of returns, which is good, as high returns could be hard to find.

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0

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2010 2011 2012 2013 2014 2015

Capital Invested ($B) # of Deals Closed

0%

10%

20%

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50%

60%

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80%

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100%

2006

2007

2008

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2010

2011

2012

2013

2014

2015

*

Under $500K $500K-$1M $1M-$5M $5M-$10M $10M-$25M $25M+

*As of 9/30/2015

8 PITCHBOOK 4Q 2015


Women FoundersFINANCINGS OF U.S. COMPANIESFOUNDED BY WOMEN

Despite increasing success in attracting venture dollars,

companies founded or cofounded by women still account for a very minor portion of capital flow. Through the end of 3Q, female founders in the U.S. have received $8.3 billion of venture funding across 789 deals in 2015, 14% of the total capital invested by venture firms this year. While the total sum of capital raised outpaces 2014 handily, with a full quarter left to go, it is still a very small portion of the market. When looking at past numbers, the growth in financings of women entrepreneurs has been considerable, with the number of investments more than doubling and capital invested increasing by 81%. Compared to the industry as a whole, however, the end results are still clearly disproportionate. The lack of diversity in venture capital portfolios has become increasingly noted, which has doubtless helped and may spur even more funding of female entrepreneurs. It’s worth

Source: PitchBook

$3.7

$4.0

$4.6

$6.7

$8.3

645

992

1,164

1,309

789

0

200

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$0.0

$1.0

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$7.0

$8.0

$9.0

2011 2012 2013 2014 2015*

Capital Invested ($B)Deal Count (#)

*As of 9/30/2015

WOMEN-FOUNDED COMPANIES’% OF TOTAL VC INVESTMENT


9%10% 11% 10%

14%

11%

14% 14%15% 15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2011 2012 2013 2014 2015*

% of Capital Invested

% of Deals

noting the growth of companies founded by women is keeping pace with the industry as a whole. In 2015, they have seen median step-up multiples in round size outpace the

typical venture-backed company by an appreciable margin.

Stay tuned for more coverage on this topic upcoming on the PitchBook Blog.

1.5x 1.5x

1.3x

1.5x1.6x

1.5x1.5x

1.4x 1.5x

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2011 2012 2013 2014 2015*

All Companies Female Founders

MEDIAN STEP-UP MULTIPLES IN ROUND SIZE


9 PITCHBOOK 4Q 2015


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http://blog.pitchbook.com/

Activity by SectorU.S. VC ACTIVITY (#) BY SECTOR

U.S. VC ACTIVITY ($) BY SECTOR

Source: PitchBook

What precisely constitutes a sector can, at times, become

tricky in the margins. To best represent VC investment trends by sector, we’ve recently tinkered with some of our categories, expanding healthcare and consumer and adding energy and IT hardware, among other shifts. Some things haven’t changed: Software is still predominant in terms of both number and value of rounds, with over 2,000 financings raising $22.7 billion in 2015 to date. Those figures constitute about 40% of all 2015 activity thus far and close to 40% of all venture dollars. Given the rapidity of lowering costs and evolution of delivery models within software, not to mention the growth in total accessible market, its popularity as an investment destination makes sense. The waning fortunes of IT hardware differ in that upfront costs lend a considerable advantage to incumbents, hence its decline relative to software.

One intriguing question that arises is whether the sheer proportion of dollars flowing to software alone makes sense in the long term, with regard to innovation. The relative lack of money in energy and hardware suggests those sectors are underfunded—although given the risks in energy, its totals make sense—which could pose problems for crucial niches. For example, the semiconductor industry is still transitioning to 10-nanometer manufacturing—but even though seven-nanometer working samples may exist, what lies beyond? This is a few years down the road, but that is what venture capital is all about.

*As of 9/30/2015

0%

10%

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30%

40%

50%

60%

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80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Other

Software

Pharma & Biotech

Media

IT Hardware

HealthcareSvcs/Suppl./Syst.

Energy

Consumer Goods &Recreation

Commercial Services

0%

10%

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30%

40%

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100%

2006

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2010

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*

Other

Software

Pharma & Biotech

Media

IT Hardware

HealthcareSvcs/Suppl./Syst.

Energy

Consumer Goods &Recreation

Commercial Services


10 PITCHBOOK 4Q 2015


Will Kohler Partner

Lightspeed Venture Partners

Q: In today’s overheated environment, how do you contend with the trend of even early stage financings and valuations over-inflating?

A: We typically form an investment thesis in an area after lots of work and experiences. So when we’re fortunate enough to get in front of exceptional entrepreneurs that share the same vision, we hope to compete on more than just price. This may sound like lip service, but companies have to grow into their valuations over time and our job is to work with entrepreneurs to help make that happen.

What metrics do you consider most carefully when looking at potential investments nowadays? How are you assessing risk in today’s climate?

Lightspeed invests across enterprise and consumer so there are specific metrics we focus on depending on the stage of the company and the go to market approach. But in the early days, we try not to complicate things; great people building products customers are desperate to use and pay for (potentially down the line). There’s obviously more to it, but the culture of many great companies was set embracing the surprises that come while solving for that.

We assess risk at various levels with the goal of understanding where the uncertainties lie: macro environment, regulatory, ability to hire and retain talent, competition, durability of the model. In particular to today’s climate, we pay attention to what is needed to grow into and beyond the lofty valuations in the market both as an existing and potential new investor. There seems to be growing awareness for potential cap table gridlock in underperforming companies and certainly for technology publics trading at a discount.

Even at the early stage, have you been implementing any extra terms in your deals?

We have not implemented extra terms in our deals.

What’s your take on the apparent bifurcation in venture fundraising, where many seed funds are being raised while at the other end of the spectrum traditional VCs are setting up growth funds to capture more pre-IPO value?

We’ve seen parts of this movie before but like most recurrences the second or third time around are more pronounced. One effect has been that due to increased competition, seeds now look like Series As used to, Series As look like Series Bs used to, and so on—both in valuations and amounts raised. We’re also seeing seed funds raise larger funds for the same reasons that traditional VCs are setting up growth funds—own more of the winners. In the past, this bifurcation led to investing opportunities in companies in the “knothole” stage, with early signs of product/market/fit but not hitting the metrics that excite growth funds. With so much capital in the system, we’ll see if those opportunities exist.

Do you think those growth funds will be hit hard if the tech market hits a bear cycle and nontraditional venture investors cease joining late-stage rounds? Or what do you anticipate occurring in the late-stage space?

Late-stage investing approaches are designed to be opportunistic, strategic, or long-term oriented, and firms are structured differently depending on their approach and will adjust to a down cycle accordingly. The best-performing portfolio companies will continue to be funded, but it will take some time for the middle ground to play out given the large cash balances and varying expectations in the cap table. For us, we believe the best way to drive impact returns for our investors is to invest early, obtain high ownership and take a lead position in a theme we have conviction in. Roughly 85% of our investments are seed, Series A or B.

Will joined Lightspeed in 2014 and focuses on investments in the areas of SaaS solutions, enterprise IT, and cloud-based services and applications. Will has over 10 years of venture capital experience and before entering venture capital he co-founded and was an Operations Manager at Pointe Communications (d/b/a PointeCom), a facilities-based Integrated Communications Provider that grew to over $40 million in annual revenues and was later acquired.

Prior to joining Lightspeed, Will worked at Summerhill Venture Partners where he led investments in cloud-based services and applications and SaaS solutions. His selected investments include C2FO, Cargo Metrics, and Sonian Networks. For the seven years prior to joining Summerhill, Will was at Prism VentureWorks, where he led or supported investments in software & services, cloud computing and digital media companies. His selected investments include Collation (acquired by IBM), Conduit Labs (acquired by Zynga), ExpoTV, LogMeIn (LOGM), and Sonian Networks.

>> To read the full interview, which goes on to discuss investments in consumer or enterprise and underfunded sectors,

click here.>>



http://blog.pitchbook.com/qa-lightspeed-venture-partners-will-kohler-talks-valuation-levels-investing-in-consumerenterprise-and-more/

Exits Overview

U.S. VC EXITS BY YEAR

U.S. VC EXITS BY QUARTER

U.S. venture exit activity is diminishing slowly but

steadily. A 16% decline in exit counts between 2Q and 3Q was observed. Exit value in 3Q was stable at $13 billion—around the quarterly level seen over the past two years—and yearly totals seem healthy, so those eyeing current liquidity options in light of late-stage valuations may seek reassurance in those yearly numbers rather than the past few quarters. After all, the ramp-up in completed exits from 2010 to 2014 was steep, with a huge $251 billion in total exit value achieved.

But the fact remains that if 4Q 2015 numbers are anything like the third quarter’s, 2015 will see the lowest total of exits since 2011. Overall exit value may have been relatively healthy thus far into the year, but does it measure up to overall capital invested and valuation levels, especially at

Source: PitchBook

Source: PitchBook

the late stage? With $14.1 billion invested at the late stage alone in 3Q, it’s hard to see how it does. In short, historical exit numbers do

not show much evidence of the liquidity necessary to justify many of the valuations currently seen in the market.

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169

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2010 2011 2012 2013 2014 2015

Capital Exited ($B) # of Exits

$25

$43

$23

$14

$28

$40

$53

$38

$92

$41

493

587

450

472

680718

853 870

987

645

0

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1,000

1,200

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Capital Exited ($B) # of Exits

*As of 9/30/2015



Exits by Type

VC EXITS & CAPITAL EXITED BY TYPE

Strategics’ appetite for venture-backed companies is waning. 3Q

saw 152 corporate acquisitions close, the lowest quarterly sum since 2Q 2013 and a 16% slide YoY compared to 3Q last year. At $9.4 billion, exit value through that ramp wasn’t much rosier. 2015 as a whole will still post the second-strongest total of capital exited through M&A since 2006, but

The surest exit ramp for startups—M&A—seems to be

on the decline.

the declines do forecast a turn of the tide in response to overheated valuations, which poses a problem for investors seeking an exit. M&A has been the surest and most preferable exit route for VC-backed startups historically—even more so in today’s public markets climate.

Through the end of September, 57 venture-backed companies have gone public, raising a total of $6.3 billion in their initial debuts. A brief uptick of 29 IPOs in 2Q was only contrasted by the 15 completed in the third quarter, for a total of $2.4 billion. The stock markets of late have been punishing enough of companies with far healthier balance sheets than many mature, VC-backed companies that, had the conditions of 2014 persisted, would likely be listing. Private markets are a safer haven for now.

Looking ahead, it’s difficult to assess if the current state of affairs will shift. Growth is still priced at a premium—likely helping discourage potential strategic buyers—so even though it is softening, corporate acquisitions should persist at a decent clip. What’s more dubious is a fourth-quarter resurgence in public debuts. The trickle of biotechs completing IPOs is unlikely to slow, but it will remain just that, a trickle. Other than Square’s potential debut, there isn’t much in the pipeline for tech. Pure Storage (NYSE: PSTG) ended its first day of trading about 5.8% below its initial price and about 13% below its last private valuation, which is hardly encouraging, although, as one data point, shouldn’t be taken as too significant. But it may well be taken as evidence that for VC-backed companies, going public remains a chancy prospect.

$19.6

$30.3

$20.3

$11.9

$23.3

$30.4 $28.9$25.2

$77.7

$31.7

$4.0

$7.3

$1.2

$3.8

$6.2

$21.6

$9.2

$10.7

$6.3

$1.2

$5.0

$2.4

$1.3

$3.4

$2.6

$3.3

$3.9

$2.7

0

100

200

300

400

500

600

700

800

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Acquisition ($B) IPO ($B) Buyout ($B)

Acquisition Count IPO Count Buyout Count

510

78

57




Exit TrendsU.S. VC INVESTMENTS/EXIT RATIOFrom 2011 to 2013, the extent of

VCs’ optimism can be gauged by the boom in the investment/exit ratio. The most recent numbers illustrate that things have been shifting, however. Exit and financing tallies have been slumping, as we’ve seen, with the latter the primary culprit when it comes to the declining ratio. Looking at exit sizes and valuations, another cause of declining financing activity emerges. Median exit valuations for IPOs would seem sufficient for many VC-backed startups to cash out at a decent multiple for their investors. Even the $285 million median seen in 2015 to date, however, would be disappointing for quite a few heavily financed startups. Corporate acquisitions have seen fairly stable median exit valuations but, again, aren’t anywhere close to the level necessary for many late-stage startups nowadays to pull off a strong exit. It should be noted again that quite a few nontraditional venture firms have been contributing to the surge in private valuations that compares poorly to the numbers

MEDIAN EXIT VALUATION ($M)

6.2x6.8x

9.7x

8.5x

7.0x

8.3x8.5x

9.3x

8.8x8.0x

5,162

645

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0x

2x

4x

6x

8x

10x

12x

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Investments/Exits # of Investments # of ExitsSource: PitchBook*As of 9/30/2015

The disparity in investments to exits necessitates a boom in liquidity down the road.


$50

$70

$38 $25

$50 $59 $57

$44

$68 $46

$232

$334

$258

$342

$277

$426

$360$318

$250

$285

$0

$100

$200

$300

$400

$500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Acquisition/Buyout IPO

MEDIAN EXIT SIZE ($M)

$46$54

$37

$25

$37

$52$45

$38

$60$50

$54

$80

$47

$88

$72

$87$81

$75$67

$77

$0

$20

$40

$60

$80

$100

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Acquisition/Buyout IPO


below, and they don’t need anything like the returns VC firms typically require. Plus, some VCs are likely exiting in part through late stage rounds. So the boom at the late stage could continue, although it is increasingly hard to see how precisely liquidity will occur for many.



Exit Trends% OF VC EXITS TO IPO BY VC RAISEDJust how many companies remain

private that have been heavily capitalized, and need to achieve an impressive exit, is the question. In the chart to the right, we’ve broken down the proportions of companies that exit via IPO by the amount of venture capital raised. From 2006 through the end of September 2015, 49% of companies that raised $100 million or more have gone public during that timeframe. Over 400 companies founded since the start of 2000 that have raised $100 million+ in VC remain privately held. Since 49% of companies that raise that much have gone public since 2006, the IPO pipeline is sputtering on empty at best. But, on the other hand, M&A is the most popular exit route, so perhaps the top acquirers of VC-backed companies will step in. But, as the chart and table below illustrate, even the top 10 corporate buyers of venture-backed startups aren’t that active. Facebook’s acquisition of WhatsApp is the only purchase that comes close to what the upper tier

M&A OF TOP 10 STARTUP BUYERS Acquirer Acqs.*

1

5

9

3

7

2

6

10

4

8

Google 71

Oracle 24

Facebook 31

Cisco Investments 21

Twitter 28

Yahoo 41

Microsoft 22

IBM 28

21

Groupon 25

Apple

Value*

$3 $2 $5 $3 $30

$3

49

38

55

45

50

34

0

10

20

30

40

50

60

$0

$5

$10

$15

$20

$25

$30

$35

2010 2011 2012 2013 2014 2015*

Total Value ($B)

# of Acquisitions

of unicorns would require. In short, either an unprecedented wave of tech M&A will have to occur, or the public markets grow far more amenable

than they currently are, for liquidity prospects at the stratospheric upper end of valuations to improve.



$7.1B

$2.7B

$25.8B

$2.8B

$1.5B

$163M

$3.1B

$2.4B

$2.6B

$743M

Source: PitchBook*From 1/1/ 2010 to 9/30/2015

*The above chart tracks the percentage of VC-backed companies that have gone public, by the amount of capital raised prior to IPO, from 2006 - 3Q 2015. For example, 34.9% of companies which raised between $75M-$100M went public during that time frame.

<$5M $5-$10M $10-$20M $20-$50M $50-75M $75-100M $100M+

1.6% 2.0%3.4%

8.0%

21.4%

34.9%

49.0%

0%

10%

20%

30%

40%

50%

60%

% Exit via IPO



Fundraising OverviewU.S. VC FUNDRAISING BY QUARTER

Strong yearly numbers for U.S. venture fundraising

mask a slide over the past few quarters. At 177 funds for a total of $24.3 billion in commitments closed through the end of 3Q, 2015 is hardly lackluster in terms of both activity and capital raised. The results of 3Q, however, indicate that unless it was an outlier, the stream of commitments to the asset class is beginning to sputter. With under $4 billion committed across 47 vehicles, the third quarter of 2015 saw the lowest numbers since the first half of 2013.

Whether or not that leaves 3Q as an outlier remains to be seen. At first glance, the decline is most likely to be the result of timing. After all, from 2013 through the end of 2014, no fewer than 454 venture funds collected a massive total of $53.8 billion. Adding that to the $24.3

billion already raised through the end of September produces $78.1 billion raised in the span of just over 2.5 years. Venture firms are no longer crowding the fundraising trail, having soaked up all the demand from LPs over

the past few years. LPs are now settling back and either waiting for their money to either still be put to work or come back so they can recommit. Again, the lack of liquidity is likely helping drive the diminution in fundraising.


U.S. VC FUNDRAISING BY YEAR

$9 $3 $4 $4 $6 $6 $2 $10

$9 $4 $8 $3 $6 $4 $4 $6 $9 $10

$7 $8 $9 $12

$4

53

25

4033

31 28

31

43

5551

46

34

40 41

49

6160

75

69

59

66 64

47

0

10

20

30

40

50

60

70

80

$0

$2

$4

$6

$8

$10

$12

$14


2010 2011 2012 2013 2014 2015

Capital Raised ($B) # of Funds Closed

$36

$38

$29

$12

$19

$25

$24

$20

$34

$24

192

180

187

117

151

133

186 191

263

177

0

50

100

150

200

250

300

$0

$5

$10

$15

$20

$25

$30

$35

$40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Capital Raised ($B)

# of Funds Closed

Source: PitchBook



Fundraising Overview% OF FUNDS HITTING TARGETThe skyrocketing valuations

across the venture industry haven’t gone unnoticed by LPs. It has boosted enthusiasm for the asset class considerably, judging by the success of VC fundraisers in hitting their targets, with a record proportion of 87% doing so in 2015 to date. Hungry for returns in an era of low interest rates, LPs are hoping to board what could be an unprecedented wave of value creation in the tech & venture sectors. Even though 3Q numbers sagged heavily, the fact closing times for funds are still so low speaks to how eagerly LPs have been loosening the purse strings.

The 3Q dip in fundraising could indicate a rising wariness, though. The typical venture fund usually underperforms its public market equivalent by vintage, as our Benchmarking & Fund Performance reports have shown. We haven’t seen much discussion of a revision of venture fund structures ensuing, beyond suggestions to extend fund lifetimes at the outset, so LPs do seem by and large content with the status quo. Perhaps they are right—what could be different in these most recent vintages is the sheer mass of microfunds. Committing to these funds entails much more risk but also the potential for much greater returns. A well-diversified microfund only needs a home run or two and a few singles—and in their case, a home run is in the range of the median exit values we saw previously. As for the swell of $500 million+ vehicles closed since 2012 began, it may

FUND CLOSING TIMES (MONTHS)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

*

Hit Target Missed TargetSource: PitchBook*As of 9/30/2015


9.910.8

12.3

15.8

18.2

10.6

13.214.9

12.9

11.0

15.1

13.0

14.2

19.220.9

12.9

15.0 15.7 15.713.6

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Median Average

be more difficult to translate private market gains to public returns, apart from VC investors that opportunistically have

cashed out in late-stage rounds. Time will tell if the venture funds closed nowadays will buck VC’s historical performance.



http://pitchbook.com/3Q2015_PE_VC_Benchmarking_Report.html

http://pitchbook.com/3Q2015_PE_VC_Benchmarking_Report.html

MethodologyVENTURE CAPITALVenture capital, for the purposes of this report, is defined as institutional

investors that have raised a fund structured as a limited partnership from a

group of accredited investors, or a corporate entity making venture capital

investments.

VALUATIONS Pre-Money Valuation: the valuation of a company prior to the round of

investment

Post-Money Valuation: the valuation of a company following an investment

EXITSThis report includes both full and partial exits via mergers and acquisitions,

private equity buyouts and IPOs.

FUNDRAISINGThis report includes all U.S.-based venture capital funds that have held a final

close. Fund-of-funds and secondary funds are not included.

3Q 2015 VC Deal League Tables

ANGEL/SEED

INVESTOR ROUNDS

EARLY STAGE LATE STAGE

INVE S T ORS

L AW F IRMSSource: PitchBook

Source: PitchBook Source: PitchBook

New Enterprise Associates

Sequoia Capital

Fidelity Mgmt & Research

Intel Capital

Lightspeed Venture Partners

Institutional Venture Partners

Wellington Management

KPCB

Google Capital

Andreessen Horowitz

Accel Partners

First Round Capital

Khosla Ventures


Formation 8

Google Ventures

DCM Ventures

Chicago Ventures

KPCB

Intel Capital

500 Startups

Techstars

SV Angel

Social Starts

SOSV


Lerer Hippeau Ventures

Metamorphic Ventures

Accel Partners

Brooklyn Bridge Ventures

Dave Lerner

9

8

8

8

7

7

7

6

6

6

12

12

11

11

8

8

7

7

7

7

6

6

5

4

4

4

4

4

4

4

4

INVESTOR INVESTORROUNDS ROUNDS

EARLY STAGE

LATE STAGE

Gunderson Dettmer

Wilson Sonsini

Goodwin Procter

Cooley

DLA Piper

Orrick Herrington & Sutcliffe

O’Melveny & Myers

Wilson Sonsini

Gunderson Dettmer

Cooley

Goodwin Procter

Fenwick & West

DLA Piper

O’Melveny & Myers

Perkins Coie

WilmerHale

44

25

22

17

16

14

7

41

35

34

23

19

18

7

6

5

FIRM

FIRM

ROUNDS

ROUNDS

Source: PitchBook

Source: PitchBook

All league tables are compiled using the number of completed VC rounds for U.S.-based companies in 3Q 2015. Rounds in which a firm advised multiple parties will only be counted once for that firm. To ensure your firm is accurately represented in future PitchBook reports, please contact [email protected].



mailto:[email protected].

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Europe League Table 40,672

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Open Funds 89

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NEWS & LIBRARY

Katzen Eye Group Goes Varsity

Energy

VCs Doing Better Than Ever

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European Activity Highlights

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Top Exits by Industry

Brightside Acquisition AnaCap’d

Super Uber Round

Meritech Closes $500M Fund

Limited Partners

2,716 LP’s

Limited Partners Name (2,716)# Limited Partner Type # Affiliated Funds

# Affiliated Investors

1

2

3

4

5

6

7

8

9

10

11

12

13

New York State Common Retirement Fund

Pennsylvania State Employee’s Retirement S...Pennsylvania Public School Employee Retire...

Bell Atlantic Master Trust

Teachers Insurance and Annuity Assocation...

Massachusetts Pendon Reserves Investment...

Metropolitan Life Insurance

New York State Teachers Retirement System

Metlife Insurance Company of ConnecticutMassachusetts Mutual Life Insurance Company

China Insurance Company

Public Pension Fund

Public Pension Fund

Public Pension Fund

Corporate Pension

Insurance Company

Public Pension Fund

Insurance CompanyPublic Pension Fund

Insurance Company

Insurance Company

Public Pension Fund

594502

348333

328313

312308

304

274373

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New York State Teachers Retirement System Public Pension Fund 308

Bell Atlantic Master Trust Corporate Pension 333

AUM Private Equity

Private Equity (%) HQ Location HQ Ph

312192

158157

169136

185126

212

163147

Add Column

176,200.00

25,900.00

50,500.00103.35

178.50

59,700.00

516,206.00104,300.00

405,900.00

24,700.00181,980.00

13,919.80

25,900.00

8,040.00103.35

178.50

5,916.00

516,206.007,800.00

405,900.00

24,700.0018,371.00

8%

12%22%17%

42%

12%

7%8%

4.5%

7.3%10%

Albany, NY

Harrisburg, PA

Harrisburg, PA

Basking Ridge, NJ

New York, NY

Boston, MA

New York, NYAlbany, NY

Bloomfield, Ct

Springfield, MA

Quebec, Canada

Layouts:

LP Summary Layout Save Save As

126 104,300.00 7,800.00 8% Albany, NY

157 103.35 103.35 17% Basking Ridge, NJ

COMPANY SIGNALS

LiquidPlanner Seattle, WashingtonBusiness/ Productivity Software... -

Series BLast Inv. Type

May-2014Last Inv. Date

4Investor

Growth RateSize Multiple

45People

$24.32MVal. May 2014

Company Name

The Stiller

Bonobos

Growth Rate

10.2%

19.65%

Size Multiple

1.32K

150K

Total Capital Invested (millions, USD) Deal Count

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2.73xx avg.

76th %ile

115%98th %ile

weekly

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