IsVentureOver‐valued?

Numberstoponder…

SandHillEconometricsOctober20,2015

TheSandHillIndex

Anindexofvalueforventure‐fundedcompaniesLikeastockmarketindex,eg,Wilshire5000or

^DJTSM– Value‐weighted Continuouslyinvested Compiledonacurrent‐valuebasis

Showschangesovertimeforaportfolioinvestedinallventure‐fundedcompanies

 

Data–VentureSource(DowJones) 82,000valuationevents(roundsandexits) 25,000companies 9,000companiesstillprivatenow 16,400totalexits 1,900IPOs 7,500acquisitions 7,000failures

IndexComputationStrategy

AvalueforeverycompanyeverymonthCompaniesenterindexuponfirstroundoffundingCompaniesexitatIPO,Acquisition,orShutdown

Ifcompanyraisesaround,sharesvalue,weuseitIfcompanyraisesaround,novalue,weestimateitForIPOs,usepre‐moneyvalueIfshutdown,value=0Ifacquisition,valueshared,weuseitIfacquisition,novalueshared,weestimateitInterpolatebetweenrounds,andextrapolateafterlastround

Essential:Adjustestimatedvaluesforselectionbias.

Datachallenges:

1) Gravefinderbottofindquietfailures.

2) Rounds:Upwardbiasinreportedvalues.Correctbiasusinguncensored,secret,data.

3) Abouthalfofacquiredcompaniesdonotshareavalue.Many

areactuallyfailures.Toestimatemissingvalues,weuseeverythingweknowaboutthecompany(moneyraised,industry,location,levelofthestockmarket,yearsfromfirstround,businessstatus,bridgebeforeexit,whetheracquirerwaspublicorprivate,andmore),plusdatawehavegatheredoneffortrequiredtofindfindablevalues.

Biggerefforttofindavalue⇒lowervalue.

TheIndex

0

1,000

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6,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

The Sand Hill Index: All Industries

© 2014 Sand Hill Econometrics, Inc. ALL RIGHTS RESERVED

The Sand Hill Index: All Industries

Industries

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2,000

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1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

The Sand Hill Index: All Industries Compared

Other

Info Tech - Hardware

HealthRetail

© 2014 Sand Hill Econometrics, Inc. ALL RIGHTS RESERVED

TotalInfo Tech - Software

Cleantech

Somesummarystatistics Total$$investedinexitedcompanies $410bn Total$$valueofexitingcompanies $1,215bn $$Valuetoinvestorsfromexits $700bn $$Valuetofounders&ees $515bn

Grossnominalreturntoinvestors:18%/yr

Allfiguresarebeforefeesandcarry %offounderswith$>0atexit:30% MarketCapofcompaniesstillprivatenow$870bn $$investedincompaniesstillprivatenow$250bn

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%3/1/1992

10/1/1992

5/1/1993

12/1/1993

7/1/1994

2/1/1995

9/1/1995

4/1/1996

11/1/1996

6/1/1997

1/1/1998

8/1/1998

3/1/1999

10/1/1999

5/1/2000

12/1/2000

7/1/2001

2/1/2002

9/1/2002

4/1/2003

11/1/2003

6/1/2004

1/1/2005

8/1/2005

3/1/2006

10/1/2006

5/1/2007

12/1/2007

7/1/2008

2/1/2009

9/1/2009

4/1/2010

11/1/2010

6/1/2011

1/1/2012

8/1/2012

3/1/2013

10/1/2013

5/1/2014

12/1/2014

VC Market Cap as Percent of US Public Market Cap 

Areafewhigh‐valuematurecompaniesresponsible?Lookatfirstrounds.

0.00

2.00

4.00

6.00

8.00

10.00

12.00

1990Q1

1990Q4

1991Q3

1992Q2

1993Q1

1993Q4

1994Q3

1995Q2

1996Q1

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1997Q3

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2001Q2

2002Q1

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2004Q2

2005Q1

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2006Q3

2007Q2

2008Q1

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2009Q3

2010Q2

2011Q1

2011Q4

2012Q3

2013Q2

2014Q1

2014Q4

Total money raised in first rounds, 1990‐2015q2 ($ millions)

Whataboutvalueperdollarraisedinfirstrounds?

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1990Q1

1990Q4

1991Q3

1992Q2

1993Q1

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1994Q3

1995Q2

1996Q1

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1998Q2

1999Q1

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2001Q2

2002Q1

2002Q4

2003Q3

2004Q2

2005Q1

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2006Q3

2007Q2

2008Q1

2008Q4

2009Q3

2010Q2

2011Q1

2011Q4

2012Q3

2013Q2

2014Q1

2014Q4

Pre‐money value per $ raised, first rounds, 1990‐2015q2

Andthenumberofcompaniesdoingafirstround?

0

100

200

300

400

500

600

700

800

900

1990Q1

1990Q4

1991Q3

1992Q2

1993Q1

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1999Q1

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2001Q2

2002Q1

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2003Q3

2004Q2

2005Q1

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2006Q3

2007Q2

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2009Q3

2010Q2

2011Q1

2011Q4

2012Q3

2013Q2

2014Q1

2014Q4

New companies per quarter, 1990‐2015

Whogetstheexitvalue?

0

20

40

60

80

100

120

140

160

180

200

Venture Capital Exit Value by year, bns of $$

founders investors

AndtheroleofNorthernCalifornia?(notetwocliffsinmarketcap–Googleexitin2004,Facebookexitin2012)

0

0.1

0.2

0.3

0.4

0.5

0.6

Mar‐92

Dec‐92

Sep‐93

Jun‐94

Mar‐95

Dec‐95

Sep‐96

Jun‐97

Mar‐98

Dec‐98

Sep‐99

Jun‐00

Mar‐01

Dec‐01

Sep‐02

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Jun‐15

Northern California, % of mkt cap and money raised

NoCal % of Mkt Cap

No Cal % of $$ raised