Download - Final vcj conference oct 2011
The State of the Venture Capital Markets
Mark Suster
VCJ Venture Alpha Conference – October 2011
@msuster
What is the State of the VC Market?
What Comes After Social Networking?
Accenture (software dev)
BuildOnline (’99)
Koral (’05)
VP Product Mgmt, Salesforce.com
Largest VC firm in Southern California
Both Sides of The Table
This Week in VC
The Set Up
What is Driving Change?
It Is Dramatically Cheaper to Start a Company
Open source
Cloud
Developers Start
Companies
2000
$5m
$500k
2005
$50k
2009
$5k201
1
Amazon & Ycombinator Have Fueled the Market
• 90% reduction in cost
• Faster time-to-market
• Great ability to experiment
So Founders Much Younger, More Technical
Huge Explosion in Tech Startup Creation
Seed Deals /
Incubation
While The Total Number of VCs Has Right-Sized
The Opportunities are Much Bigger
2001 2011
100
2,000 • Always On
• Higher Speed
• Payment Ready
• Socially Linked
Millions Online
Conditions Actually Bode Really Well for VCs
Active VCs
Seed Deals
Revenue Potential+
So What Exactly Is Changing in our
Industry?
Some Goods, Some Bads
Mentorship-Led Investing Has Captured Enormous Talent Pool
Access to Deals
Access to Deals
Great New Focused & Disciplined VCs Created
Super Early
Territory
Topic Area(i.e. big data)
Thrive
Early or Classic A
Some Traditional VCs Now Doing Many Seed Deals
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
This is Driven by FOMO (Fear of Missing Out)
High volume, small deals
No oversight
Purely an “option”
Not smart strategy for VC or founders
In H1 2011 80% of LP Money Went to Just 7 Firms. The Billion Dollar Club.
7 Firms Total
$6.3
$8.1
VC Money Raised($ billion)
Which Begs the Question of Whether It’s Venture Capital or Growth Equity
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
Fund Size + FOMO Driving Separation from Price & Underlying Value
Time
$
Historic Value
Today’s Market
People are Paying Growth Prices for Market Risk
Time
Val
uatio
n
Product RiskProduct Risk
Growth / Scale Risk
Growth / Scale Risk
Monetization / Competition RiskMonetization /
Competition RiskMarket RiskMarket Risk
Probably Less Traditional VCs Being Funded Lately.
SeedSeed C-ERound
C-ERound
A, BRoundA, B
Round
$25-75m
Typical Fund Size
$200-300m
$500m-$1bn
Traditionally VCs Have Focused on Few Companies & Deep Commitments
1-2 deals per partner /
year
Many deals / year
Ops SupportOps Support
Two great firms have reinvented model by focusing on the “group collective”
• Founder friendly
• High volume
• CEO Summits
• Founder Email Lists
• X-Company Equity Sharing
• Heavy focus on “second round capital”
WinningWinning Follow On $$Follow On $$
Some of Best Returns Seem to Be Driven By “Right-Sized” Traditional
VCs
Public
Accessible
Though-Leaders
Public Openness Helps With Every Major Stage of the VC Lifecycle
Access to Deals
Access to Deals WinningWinning Follow
On $$Follow On $$ ExitsExits
Top end of funnel much wider
Founders want to
work with you
VCs work with others they know,
like & respect
Awareness with
buyers for your
portfolio
So What is the Next Big Investment Opportunity
on the Internet?
Television.
Yes, really.
Americans watch 5.3 hours of TV / Day
TVReading
< 1 Hour
5.3 Hours
Media Patterns
Online
3 Hours
You Tell Me What the
Future of the Internet Is?
But VCs Hate Investing in Content – Hits Driven Business?
It’s Not Just Dogs on Skateboards Anymore
A Disruptive Breed of Digital Content Producer Has Emerged
UGC Network TVYouTube TV
Pro
du
cti
on
C
osts
/
Min
ute
$100-400
$6,000-8,000
These 4 LA Companies Alone Doing > 3 Billion Video Views / Month
YouTube TV
Costs
/
Min
ute
YouTube is the New Comcast … And Notice the Change in Branding
With YouTube Content Distribution is Much More Predictable
ViewerViewer
Subscribers
Email Lists
Facebook Connect
YouTubeYouTubeProducerProducer
Youth Demo Already 1/3rd of Time Online Watching Video
Streaming Video
Other Surfing
And Revenue Becoming Substantive
How Mainstream? 86% of All Internet Watch Online Video
Aug 11
42 billion views
185 million viewers
228 videos / person
17 hours
91% of Households Still Pay for TV (91%)
This Market Disruption Will Be
Enormous – And It’s Arriving Now
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Thank you