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07

Jan

2013

The VC Bar Bell PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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Today the NVCA and Thomson Reuters issued our Q4 and YE 2012 Venture Capital Fundraising statistics which measure the amount of funds US VC firms are raising from qualified investors.  As expected, the fourth quarter was extremely slow in terms of fundraising activity with just 42 funds raising $3.3 billion dollars.  With many larger funds already closed in the first three quarters of the year and the political and market uncertainty, the dollars stayed largely on the sidelines.  Those funds that did raise were smaller in nature, with the average fund size just $78 million – compared to averages of $91 million, $135 million, and $111 million in Q3, Q2 and Q1 2012 respectively.  This dynamic highlights an important trend that has taken shape and will drive venture investment for the foreseeable future:  Bifurcation.

Venture capital fundraising activity is being driven at two ends of the spectrum:  Large funds – over $700 million – are being raised and deployed by well established firms who are stage agnostic (seed to growth equity), nationally and internationally driven, and have the exit track record to attract limited partners.  The five largest funds raised in 2012 accounted for one third of the dollars raised in the year.

At the other end of the spectrum are the smaller industry or geographically focused funds that are largely looking at seed and early stage investments.  This is where many first time funds are being raised.  Of the 182 funds raising money in 2012, 158 or 87 percent were under $300 million.  And of the 55 first time funds raised in 2012, all but 3 were under $300 million with 88 percent under $100 million.

These numbers suggest to entrepreneurs the types of venture firms that they are likely to be working with over the next decade – large or small.  Each has distinct advantages, but it will be choice many will have to make.  One thing seems clear though:  the mid size funds – that sit in between this barbell structure -- will be fewer going forward as the industry continues to concentrate at either end.

 

02

Jan

2013

Fiscal Cliff Agreement's Impact on VC PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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Both the U.S. Senate and the House of Representatives have passed a bill temporarily forestalling the “fiscal cliff” and closing at least the opening round of negotiations on tax policy.  While the bill postpones sequestration – the mandated budgets cuts to defense and non-defense discretionary spending – it only does so for two months, meaning the Administration and Congress will be back at the negotiating table in short order.  The new deadline on sequestration coincides with the expected deadline on increasing the nation’s debt ceiling.

For the venture industry itself, the bill is generally good news, albeit temporary in nature.  As expected, the final legislation sent to the President returns the capital gains rate to 20% for individuals with income above $400,000 or families with income above $450,000.  With the addition of the 3.8% capital gains tax mandated under the Affordable Care Act, the capital gains tax rate in 2013 will be 23.8% for most VCs. The Administration had pushed aggressively for a higher cap gains rate, but was unsuccessful in that effort.  Also significantly, the measure does not include any change to the taxation of carried interest.  As we move forward into overall tax reform, we would therefore not anticipate any further increase in the capital gains rate, but we fully expect to see carried interest as a part of the discussion.

For venture backed companies, the bill offers a two year extension of many tax policies such as the Section 25C credit for energy-efficient improvements to existing homes, the ITC and the PTC, as well as the cellulosic biofuels producer credit.  However, the bill does not provide any relief for medical device companies facing the excise tax mandated under the Affordable Care Act.

The impact of this agreement will go beyond the immediate term.  The temporary cliff provisions in the new law may necessitate that Congress delay serious tax reform discussions until the second half of the year. While world markets are up today,  the continued fiscal uncertainty likely will not assuage the markets in the first quarter which continues to seek long term stability.   In sum, the agreement hammered out over the Holidays presents the venture and entrepreneurial communities with some pressing unresolved issues that could impact us in 2013.  However, NVCA is confident we can navigate these shoals and have a prosperous 2013.

 

02

Jan

2013

2012 Exits: We'll Take the Quality PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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Today the NVCA and Thomson Reuters released our Q4 and Year End 2012 Exit Poll which measures venture-backed IPOs and M&As.  The year was a disappointment when it comes to volumes.  The promise of a more robust IPO market driven by a stronger, JOBs Act fueled pipeline never materialized as the market stalled in the third quarter after the Facebook IPO and again as we approached the Presidential election and fiscal cliff in Q4.  That same uncertainty kept M&A volumes lower as well, as strategic buyers also stood on the sidelines and awaited decisions in Washington.  Yet, the 2012 exit market did have one thing going for it:  Quality.

While the average IPO offering in 2012 was double that of 2011, that gain can be largely attributed to the massive Facebook IPO.  But looking beyond that one offering, seven of the eight companies that went public in Q4 are trading above their offering price, and 30 out of 49 are doing so for the year.  On the M&A side, the average disclosed transaction value was 25 percent higher than in 2011 and the percentage of transactions bringing in more than 4 times the investment was consistently over 50 percent throughout the year.   We were on the right side of quality for venture-backed exits in 2012 and expect this trend to continue.

The market is open and investors are ready to reward strong companies and transactions.  Here’s hoping 2013 brings the stability to let our best companies shine.

 

19

Dec

2012

2013 Predictions: Darkest Before the Dawn PDF Print E-mail

Mark Heesen

Written by Mark Heesen   
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We didn’t think the venture capital and startup communities could become more pessimistic than they were last year – but we were wrong.  Normally known for their optimism, VCs and CEOs of venture-backed startups were loathe to predict upswings in investment levels, fundraising, IPOs and the economy for 2012 – and they were right.  So it stands to reason that the realism that permeated last year’s predictions would carry over into this year.  Even fewer respondents to our 2013 VentureView Predictions survey see more of anything in the coming year.  Consider the following:

  • Last year 48 percent of VCs thought IPO volume would improve; this year 40 percent expect more IPOs
  • Last year 32 percent of VCs though venture investment would increase; this year 27 percent see more investment next year.
  • Last year 27 percent of VCs thought there would be an increase in firm fundraising;  this year just 14 percent see increases
  • Last year 47 percent of VCs thought the economy would improve; this year this year only 42 percent think so.

The CEOs mirror these prediction trends – with 5-10% of respondents less bullish than in 2011.  So what is happening?

The timing of our survey should not go unnoticed.  Taken in the last week of November/first week of December, the reality of a dive over the fiscal cliff was front and center in the minds of many.  What drives the economy, drives the public markets, which drives VC fundraising, which drives investment… and so on.   What is abundantly clear to us at NVCA is that Washington politics can either prop up or wreak havoc on the venture capital market and nowhere is that more obvious than in these survey results – with one exception:  The Power and Enthusiasm of Startup Companies.

Our 2013 survey again predicts a large majority (83 percent) of venture-backed companies increasing headcount next year.  Seventy eight percent of CEOs surveyed expected their company valuation to increase. And 67 percent expect to increase their global activity.  It is this optimism that brings VCs to work each and every day.  Entrepreneurship and innovation always prevail.

One final note:  We must be careful not necessarily to equate “more” with “better”.  In some cases, less is better.  As the size of the venture industry continues to decrease, returns are poised to improve.  In some investment areas, we need to pull back the reins as we know full well that industry cannot scale to monumental levels and still perform in a manner that is acceptable to our limited partners.  So while, the overall predictions are for “less” in 2013, it might be the beginning of "better" for the foreseeable future.

You can see all of our predictions and data here:

Press Release Summary

Data Charts

VC Predictions

CEO Predictions

 

20

Nov

2012

Doing Our Part To Help NY’s Start-Up Community PDF Print E-mail

Jeanne Metzger

Written by Jeanne Metzger   
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NVCA is frequently asked by policymakers, economic development agencies and others interested in growing their entrepreneurial ecosystem what the key elements are for a region to emerge as an innovation hub. There is, unfortunately, no secret sauce. However, regions with strong research institutions, a well educated workforce, a developed transportation infrastructure (particularly airports with plentiful flight options to other entrepreneurial hubs) and a service industry that can support venture creation are at an advantage.

The good news is that in recent years we have seen several regions throughout the U.S. gain traction in terms of their start-up communities.  New York City is one region where there has been considerable excitement with many new start-ups and the active involvement from investors within the region and beyond.  New York encompasses all the key elements needed for an entrepreneurial hub but also is the base for several industries that are ripe for transformation by technology.

The past few weeks have been a real test for the nascent New York innovation ecosystem due to the impact of Hurricane Sandy. Many of New York’s startups were located in the neighborhoods hardest hit by the storm.  It has been heartening to hear of the stories of start-ups with heat and power offering space to those without and entrepreneurial teams carrying on despite challenges.

NVCA wants to do its part to help the New York entrepreneurial community recover. That is why the Association today announced that it will sponsor 40 tickets for New York’s Mobile Madness Event.  These tickets will be awarded to New York Startups that are less than 3 years old and will be awarded first to those impacted by Hurricane Sandy. We hope it helps a few start-ups make some connections that they may have not otherwise.

 

19

Nov

2012

NVCA StratCom Group Continues Legacy of Best Practices PDF Print E-mail

Emily Mendell

Written by Emily Mendell   
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Ever wonder how to find out who the most prolific Twitter user is at the New York Times?  How about whether or not you can advertise your next fund under the new general solicitation rules?  Do you know how to get on Deirdre Bolton’s Bloomberg TV show Money Moves?  Any sense what policy reforms have the best chance of passing in 2013? And if the venture industry was a musical instrument, what would it be?

If you were part of the NVCA Fall StratCom meeting in NYC in November, you would have answers to all of these questions – and more.

While it may feel like the role of marketing and communications is a new, emerging focus for venture capital firms across the country, the fact is that many NVCA members have embraced this discipline for years.  Nowhere was that more apparent than in a filled room at Bloomberg World headquarters in New York City on November 13th as approximately 50 marketing, communications and IR professionals gathered for the Fall Strategic Communications (StratCom) group meeting.  Now in its 8th year, the StratCom Group brings together NVCA members who are responsible for the brands of their respective firms and portfolio companies to learn from one another on the best way to communicate in a rapidly changing market place.

November’s meeting focused on a wide range of topics from social media, to fundraising to PR to branding.  The day kicked off with a press panel from the various Bloomberg channels including newswires, BusinessWeek, television, newsletters and LINK conferences.  Throughout the day we heard from: 

  • Marry Kuusisto and David Tegeler of Proskauer on general solicitation of funds rules
  • DeSantis and Breindel and Rooney & Associates about the importance of brand in the VC industry
  • Kareem Hamady and Jill Lewandosky on the private equity section of the Bloomberg terminal
  • Jennifer Dowling  from NVCA on the post election environment in Washington DC
  • Greg Galant ,CEO of MuckRuck, on following journalists on Twitter
  • Katy Knight and Jeff Salvitti on using Google+ to create communities
  • Mike Nugent, Bison, Ryan More of Atlas Venture and Roland Reynolds Industry Ventures on the importance of transparency of fund information
  • Gina Bauman, IVP and Dipti Pratt of Silicon Valley Community Foundation on ESG strategies

It was a jam packed day with a great deal of information sharing.  The group was also together the evening before when we joined members of the NY Financial press for cocktails at the Aspen Social Club.

Any NVCA member is welcome to join the StratCom Group which gathers twice each year (next meeting will be in the late Spring on the West Coast).  Additionally we stay in touch throughout the year on a variety of projects.  We encourage those responsible or those who have an interest in marketing, communications and investor relations to consider joining this ever growing group. PR agencies with NVCA member clients are also invited to join under the venture firm name.

If you have any questions or would like more information on the StratCom Group, please contact Emily Mendell at emendell@nvca.org.

 
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