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18

Nov

2013

NVCA Celebrates Global Entrepreneurship Week PDF Print E-mail

Bobby Franklin

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This week, NVCA will join the world in celebrating Global Entrepreneurship Week. Entrepreneurship energizes America’s spirit and its economy – permeating all of its industries, technologies, products, services and geographies.  It’s not hyperbole to say that venture capital would not exist without entrepreneurs and the innovative companies they build. In turn, venture plays a unique and crucial role in empowering entrepreneurs through providing funding and other resources, insights into how to build and scale their companies, experienced hands to guide them through business challenges, and connections to strategic partners and other valuable contacts.

In recognition of this special symbiosis between entrepreneurs and VCs, each day this week NVCAccess will feature a guest blog post by an NVCA member that provides insights into common issues that entrepreneurs face. Our thanks go out to Sharon Wienbar (Scale Venture Partners), Adam Marcus (Open View Venture Partners), Brad Feld (Foundry Group), Adam D’Augelli (True Ventures), and Phin Barnes (First Round Capital) for sharing their guidance. Their posts will appear under the title, “Entrepreneur’s Corner,” and feature the GEW logo. While they will represent just a small slice of the dialogue that occurs daily between entrepreneurs and VCs, we hope that these guest posts can serve as a valuable resource for entrepreneurs – or anyone else, for that matter – looking to understand the process of building innovative startups better.

Global Entrepreneurship Week runs from Nov. 18-22. 

Last Updated on Monday, 18 November 2013 11:08
 

15

Nov

2013

Moving More EGCs from the On-Ramp to IPOs PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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This past Monday, NVCA participated in the release of a new report aimed at improving access to public capital for startups and emerging growth companies. Entitled "From the On-Ramp to the Freeway: Refueling Job Creation and Growth by Reconnecting Investors with Small-Cap Companies," the report follows up on the 2011 efforts of the IPO Task Force, whose “Rebuilding the IPO On-Ramp” report helped lead to the passage of the JOBS Act of 2012., NVCA Board Director Scott Kupor (Andreessen Horowitz) served as co-Chair of the new task force, while I provided policy guidance.

The report begins by detailing how the JOBS Act has re-energized interest in the public markets on the part of startups. According to the investment database Dealogic, more than 200 companies have registered with the SEC as “emerging growth companies” since the law’s enactment. However, the number of IPOs remains below historical norms. One possible cause for this disparity between interest in public offerings and actually following through may be a lack of trading liquidity and aftermarket support (i.e. research coverage and market-maker support) for small companies after their IPOs. The result of recent changes in the mechanics and economics behind stock trading, these challenges can make it difficult for small-cap companies to raise additional growth capital after their IPOs. In short, many small-caps take on the costs and risks of becoming public companies without enjoying the benefits. This dynamic may still give pause to portfolio companies as they evaluate IPOs against other exit options.

The “Freeway” report’s recommendations address these challenges for emerging growth companies by proposing new rules for trading small-cap stocks. Specifically, these rules would increase the minimum quote increment for small caps from one cent to five cents – thus increasing the potential economic incentive for trading small cap stocks. In addition, trading of these stocks would be limited to the bid price, the ask price, or the mid-point between the two, which the task force believes will curb some of the trading strategies that undermine liquidity in the small cap market.

So far, the report has generated a healthy amount of interest both in Congress and in the administration. Only a few weeks remain in the legislative calendar this year, but we will continue to educate members of Congress and the Securities and Exchange Commission (SEC) on these issues, with the goal of seeing more concrete steps early in 2014.

Last Updated on Friday, 15 November 2013 12:07
 

11

Nov

2013

Venture-Backed Innovation Thrives Across the U.S. PDF Print E-mail

Bobby Franklin

Written by Bobby Franklin   
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As an Arkansas native, I’ve learned an important rule of thumb for visiting cities like Chicago: Get there before it gets cold. I don’t think I accomplished that last week when I blew into the Windy City as part of my nationwide NVCA “listen and learn” tour. But I certainly appreciated the warm reception I received from the Illinois Venture Capital Association.

Two months into my tenure at NVCA, a review of my travel itinerary has me feeling a bit like my fellow Arkansan Johnny Cash: “I’ve been everywhere.” But I’m glad to say I’ve already learned a lot in the process. First, I’ve confirmed that venture capital truly is a national phenomenon. I’ve been up and down the East Coast and out to California a couple of times, and recently I've made stops in Detroit, Cleveland and Chicago. At each hub, I am even more impressed with the breadth of activity I see – from angels to growth equity to corporate VC. Second, I am continually amazed by the innovations that VCs and their portfolio companies work so hard to bring to market. Our future is in great hands, and I want to do my part by telling venture’s story of transformative innovation and growth to those who are in a position to impact it – whether positively or negatively. Third, I’ve learned just how important it is to reach out to all of the participants in this impressive innovation ecosystem of ours – from entrepreneurs to journalists to policy-makers. Each of them offers insights that can help NVCA and VCs tell our story better.

While I have enjoyed these interactions immensely, I realize that they are only the prelude to the true task at hand: Translating what I have seen and heard into a vision for leading NVCA forward. Two months in, my enthusiasm for this challenge remains the perfect antidote for any jetlag I may experience along the way.

 

08

Nov

2013

Corporate Venture Numbers Show Strong Growth through Q3 PDF Print E-mail

John Taylor

Written by John Taylor   
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For corporate VC investors, the numbers are in – at least through Q3 2013. They indicate that more than 17 percent of all venture deals involved at least one corporate VC, as tracked by the MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters.  In addition, the percentage of dollars put into those deals by corporate VCs has doubled from 2009 levels. If current trends continue, 2013 could be the first non-bubble year since 1995 that corporate groups have provided more than an estimated 10 percent of total venture dollars.

The nine-month totals for 2013 indicate 145 disclosed corporate VC groups (plus an unknown number that submitted data but requested anonymity) invested an estimated $2.4 billion in 499 deals.  The total dollars exceed the total for all of 2012. We should note that part of the increase may stem from increased outreach to the corporate VC community on the part of NVCA and Thomson Reuters. However, the higher measured activity levels are consistent with what we are hearing in the field.

As with U.S. venture capital broadly, corporate VCs overwhelming chose the software sector, which captured more than one third of the dollars. Corporate VC sector focus tracked broader VC fairly well, with two exceptions: Industrial/Energy (the sector where many clean technology initiatives are classified) and Computers & Peripherals, which CVC’s over-weighted slightly.

In our latest tabulation, we broke out corporate VC investment in the life sciences for the first time. In the first nine months of 2013, corporate VCs invested an estimated $527 million in 90 life science deals. The MoneyTree report indicates 44 disclosed Corporate VC investors participating in this space, as well as a number of undisclosed investors. Through Q3 of 2013, we estimate that corporate VCs provided more than 10 percent of the dollars going to life science companies.

The full data file is available on the Corporate Venture Group page of the NVCA website.

 

31

Oct

2013

Q2 Performance Release Marks Two Debuts PDF Print E-mail

John Taylor

Written by John Taylor   
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Thursday’s second quarter venture performance release brought good news and marked two significant firsts for NVCA and Cambridge Associates. First, the news: Venture capital performance improved significantly across nearly all time horizons as of June 30, 2013, according to the Cambridge Associates LLC U.S. Venture Capital Index®, the performance benchmark of the National Venture Capital Association (NVCA). More details can be found in the press release and the benchmark report.

This release also marks the first time that Cambridge Associates (C|A) has compared venture returns to public market returns using its new Modified Public Market Equivalent (mPME). This proprietary methodology helps investors to compare the returns they achieve on their private investments against what they would have earned had they invested the same funds in the public markets instead. Evaluating private vs. public investing strategies is an age-old dilemma for investors – and a tricky one, given that the metrics for measuring public and private returns do not provide an “apples to apples” comparison of the two. C|A’s mPME takes a novel approach to this problem by “consistently quantifying the relative performance of public and private investments added across funds, strategies and portfolios, with a minimum of external assumptions and adjustments,” as described by C|A.

The private-public question is also one that venture capitalists have been fielding more often over the past decade. We now believe we have more accurate answers, thanks to the mPME. Over time horizons greater than 15 years, U.S. venture capital has dramatically outperformed the public markets. By way of example, and at the risk of grossly oversimplifying, let’s consider that the C|A mPME venture 15-year annualized net IRR is 22.79 percent. By comparison, the C|A mPME S&P 15-year annualized IRR is 5.31 percent. This indicates that venture outperformed S&P by 17.48 percent on an IRR basis over the past 15 years. Thus, the C|A mPME S&P Value-Add equals +17.48 percent (also expressed as +1,748 basis points).

That said, over the past decade it has been tougher for funds to outperform the public market alternatives. Therefore, it’s likely that investors making commitments to future funds will maintain their focus on top quartile funds.

Our Q2 performance release also heralded the debut of growth equity as a distinct segment in the U.S. Venture Capital Index.  This recognizes the rising importance of growth equity in the venture-innovation ecosystem and represents a significant step in NVCA’s effort to integrate growth equity into the larger venture story.

 

29

Oct

2013

Patent Assertion Study Confirms Growing Costs and Burdens to Innovative Companies PDF Print E-mail

Jennifer Dowling

Written by Jennifer Connell Dowling   
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On Tuesday, NVCA and Robin Feldman, Professor of Law and Director of the Institute for Innovation Law at University of California Hastings, released the findings of a survey of VCs and portfolio companies regarding their recent experiences with patent assertions. Titled “Patent Demands & Startup Companies: The View from the Venture Capital Community,” the study confirms what we’ve been hearing anecdotally from our members: The current patent system is working well for some portfolio companies, but not for others.  Specifically:

  • Among respondents, 70 percent of venture capitalists and one in three startup companies report having received patent assertions. Eighty percent of survey respondents indicated that the number of patent demands they have received has increased over the last five years.
  • Seventy percent of VCs identified IT as the industry sector most impacted by patent demands, followed by life sciences (30 percent) and clean tech (10 percent).  Additionally, 60 percent of VC respondents reported that patent demands came from entities whose core activity is licensing or litigating patents.
  • Sixty percent of VC respondents estimate that the average cost per company to prepare for and defend against patent demands exceeds $100,000, with some reporting costs in the millions of dollars.
  • Seventy-five percent of VC respondents and 60 percent of CEOs reported that patent demands had either a highly or moderately significant impact on the companies that received them, including distracting management, expending resources, or altering business plans.
  • Seventy percent of VC respondents said they do not believe patent assertions are positive for the startup community.  Further, every VC respondent indicated that an existing patent demand against a prospective portfolio company could factor into his or her decision to invest in that company, while 50 percent said it would be a major deterrent.

As more startups are targeted by patent monetizers, more resources will be devoted to litigation rather than to innovation.  Lawmakers such as Rep. Bob Goodlatte (R-VA) have taken notice, but balancing the need for reform with the need to maintain strong protection for patent-dependent startups will be a critical challenge going forward.

Last Updated on Tuesday, 29 October 2013 12:21
 
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