“End of Silicon Valley” vs. “Morning in VC”

Mark Suster @msuster

Which Is It?

VC Funding Environment

Valuations

Status of Los Angeles

Are There Too Many Fucking Accelerators?

Want to Cover Where We’re at in the Cycle …. Plus the Stuff People Always Ask

About

The Set Up

David Sackswatch

http://bloom.bg/TLP1IA

Mark Susterwatch http://bloom.bg/TJZ5h

Just sold Yammer to Microsoft for $1.2bn

Facebook, Google, Apple, Microsoft will dominate

Only succeed at edge of forest

IE vs. Netscape, AOL/TW merger, Google monopoly, FB / Twitter / Instagram

Edge is smart

But Box.net, Dropbox, Yammer

1. The Case for Doomsday

David Sacks

silicon valley may be coming to an end .. You have to find an idea that

(1) Escaped attention of major Internet companies, which are better run than ever before

(2) Capable of being launched and proven out for ~$5M

(3) Protectable from the onslaught of those big companies

How many ideas like that are left?

Sobering that most of true disruption:

•Tesla Motors, •SpaceX, •Google driverless cars, •Google Glasses

Created by just 2 people Elon Musk & Sebastian Thrun

Steve Blank

“…shift away from … transformational technologies & toward more cynical, incrementalist investments broke venture capital.”

Founders Fund

Peter Thiel

There won’t be a “Facebook of mobile” or a “Google of mobile”

There will be Facebook & Google.

Facebook has lost more value in market cap than Lehman did through the whole

financial crisisDown•$52 billion•54%

And Price / Earnings is still 115

2. The Case for Optimism

A. Many More Startups Being Created

Lower Costs The Social Network

Movie

Seed Deals /

Incubation

This has led to a boom in seed-stage deals through accelerators, angels & seed funds

Text

B. There are 20x More Consumers Online

20x Users Online. 3.1 Hours / Day

C. We’re Online All The Time & at High Speeds

D. Mobile Really Does Change Everything

Ubiquity Personal Geo Located Bottom of Sales

Funnel

Text

E. Everybody is Payment Ready

Text

F. We’re All Socially Linked

G. “Software is Eating the World.”

(Marc Andreessen)

The Opportunities for “Hacking” Industries Not Traditionally Thought of as Tech

Opportunities

Education Khan Academy, Code Academy, General Assembly,

Treehouse

Healthcare HealthDataInsights, GoodRX

Transportation Tesla, Uber, Lyft

Finance Square, ZestCash, Simple

So What is the Status of Venture Capital?

The VC market has been right-sized – only 98 first invested $1 million per quarter in 2011

SeedSeedC-E

RoundC-E

RoundA, B

RoundA, B

Round

$25-75m

Market Gap

$200-300m

$500m-$1bn

The majority of LP money still going to seed & mega funds

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•Ad-Tech & eCommerce (low margins, low multiples)

•Won’t Silicon Valley VCs just fly down and fund best companies?

•Regional funds never worked

•Marketing muscle of NYC

But perception is starting to change

And the Market Not Sure About LA Venture Capital

A, B Round VCs

Seed Deals

A, B Round Crunch Has Already Begun

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MehValuation

Insensitive

There’s a Narrative of Haves & Have Nots

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•“10 million users is the new 1 million”

•“They haven’t really reached ‘escape velocity’”

YC Vinod Khosla

And People Privately (and Publicly) Calling Bullshit

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•Uncapped Notes

•$12m Pre Money

•Party Rounds

“I Feel Sad For Y Combinator Companies That Get So Much Hype”

On Los Angeles

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Now that we’re out of the “infrastructure phase” of the Internet, more big startups being created outside of Silicon Valley

TrueCarMaker StudiosDemand MediaShoeDazzleBeachmintNastyGal

TrueCarMaker StudiosDemand MediaShoeDazzleBeachmintNastyGal

HDIHDI

Gilt GroupeAdmeldFoursquareEtsyKickStarterStackExchange

Gilt GroupeAdmeldFoursquareEtsyKickStarterStackExchange

LivingSocialLivingSocial

GrouponGroupon

QuattroQuattro

Recent Non-Silicon Valley Successes

We Are Unique … Necessity is the Mother of All Invention

We Invented the Incubator Model – Idealab

We created monetization on the webo Overtureo Applied Semanticso Affiliate Marketingo Lead Generation

We are poised for the big Internet video boomo Maker Studioso Machinimao Big Frameo Movie Clipso Fullscreen

But Local Venture Money Remains an Issue

New Pool of Talented Entrepreneurs Driving Up Exit Events / Returns. This

Should Help

And About all These Incubators / Accelerators

•Amplify•Idealab•Launchpad•Mucker•Science•Start Engine

•10 I’m forgetting

3. The Tie Breaker

(wild cards / Black Swans)

Iran & Middle East Conflicts

Consumer Debt

US Baby Boomer Retirement

• 46% < $10,000 saved

• 29% < $1,000 saved

• 17% of senior citizens live below the poverty line

• 1950 retiree / worker = 16. Today =1.75

Euro Crisis (PIIGS) / Globally Connected World

On the other hand … aren’t these all just

opportunities for entrepreneurs?

I rest my case

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@msuster