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VC Firms Rain Down Cash on Tech Startups, Is Bubble Brewing? by Brandon Bailey AP Technology Writer

Posted in Uncategorized, tagged , , , , , on January 19, 2015| Leave a Comment »

VC Firms Rain Down Cash on Tech Startups, Is Bubble Brewing?

By BRANDON BAILEY AP Technology Writer

Cash rained down on startups in 2014, as venture capitalists poured a whopping $48.3 billion into new U.S. companies — levels not seen since before the dot-com bubble burst in 2001. Strong technology IPOs are luring investors chasing the next big return, but with valuations this high, critics suggest some investors may be setting themselves up for a major fall.

“It’s not that many businesses aren’t viable, but the question is, what are you paying for them?” said Mark Cannice, a professor of entrepreneurship at the University of San Francisco.

Venture funding surged more than 60 percent in 2014 from the prior year, most often fueling software and biotechnology companies, according to a new “MoneyTree Report” issued by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. But the money wasn’t spread around to buoy many more companies. A few just got huge piles of cash.

Last year saw a record 47 “mega-deals,” defined as investments of more than $100 million. That’s nearly twice as many as reported in 2013, said Mark McCaffrey of PricewaterhouseCoopers, who leads the accounting and consulting firm’s global software practice.

Uber Technologies, the ride-hailing service disrupting the transportation industry and generating plenty of press, received the top two biggest rounds of investment last year. Each raised $1.2 billion for Uber, and the company’s value is now pegged at $41 billion. Other major deals included $542 million (mostly from Google Inc.) invested in Magic Leap Inc., a secretive startup working on virtual reality technology; $500 million in Vice Media, which operates online news and video channels; and $485 million in SnapChat, the popular messaging service.

What’s driving those deals?

U.S. tech startups are proving they can reach vast global markets and reap sizable revenue, said McCaffrey. And there are more investors eager to get a piece of that return — private equity and hedge funds and corporate investment divisions are vying with traditional venture capitalists to back promising startups. But critics say some companies may never make enough money to justify the sky-high valuations.

The worries harken back to the go-go year of 2000, when the dot-com boom drove venture funding to a peak of $105 billion. But then a wave of new Internet companies crested and collapsed, many of them failing to ever make money. Venture funding bottomed at $19.7 billion by 2003 and spent the last decade bobbing in a $20 billion to $30 billion range before making the big leap last year.

Several experts expect funding this year to continue at a similar rate. Commercial software companies, especially those that offer cybersecurity services and tools for analyzing large amounts of data, are expected to be big draws in 2015, along with biotech and health technology.

So are we approaching another bubble?

Most experts won’t go that far, but are raising concerns about so-called “froth” in the market. Robert Ackerman, managing director and founder of Silicon Valley venture firm Allegis Capital, is convinced new software and communications startups are revolutionizing the world’s economy. However, beyond the risk of investors losing money, Ackerman said some companies may see these cash windfalls as permission to burn through money at an excessive rate, rather than spending at a level justified by their own realistic earnings potential.

“There really is an unprecedented level of innovation that is taking place,” he said. “What I worry about is how the excess of capital is affecting valuations and expectations.”

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Why star VCs matter (and what doesn’t) by Cromwell Schubarth Senior Technology Reporter- Silicon Valley Business Journal

Posted in Carl Schubarth, Sillicon Valley Business Jouranal, Uncategorized, Venture Capital, tagged , , , on July 23, 2013| Leave a Comment »

 

Why star VCs matter (and what doesn’t)

Marc Andreessen

Joi Ito / Creative Commons license

Having a big name VC on a firm such as Marc Andreessen matters more to startup founders than being funded by a big name firm, according to a new study.

Senior Technology Reporter- Silicon Valley Business Journal

Startup founders want big-name VCs like a Marc Andreessen or a Reid Hoffman on their side, not no-name firms.

And having women on the team at the firm matters more than funders think.

Those are two of the findings of a big brand study done for the National Venture Capital Association by Desantis Breindel and Rooney & Associates.

An overwhelming majority of founders in the study said VC brand means a lot to who they seek funding from.

But they disagree strongly in key areas about what is most important in that branding.

More than half of the venture-backed CEOs in the study (57 percent) said they care most about the reputation of a firm’s individual partners. Only 38 percent said they focus on the firm’s overall reputation and a mere 5 percent care about the reputation of the firm’s portfolio companies.

The gender gap may be a result of more women founders starting up companies than there are women making partner at VC firms.

One in four founders said the gender makeup of a VC firm mattered to them while only one in 10 VCs said they thought it mattered. But two-thirds of women founders said it matters to them.

Other findings of the brand study include:

— Proximity matters: About half of both founders and funders said that being located near their funders mattered to them, with about the same number saying that firms located in Silicon Valley, Boston and New York City are most attractive.

— Friendly but not too much: CEOs said they want a VC firm that is entrepreneur-friendly and collaborative but they are turned off if the firms have too much of a hands-on reputation.

— Peer networking: CEOs said the most important activity that VC firms can provide is a summit or meeting where they can learn from other founders.

Click here to read more about the National Venture Capital Association branding study.

Click here to subscribe to TechFlash Silicon Valley, the free daily email newsletter about the region’s founders and funders.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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Ben Horowitz warns startups: You’re worth less today, and you need to be OK with that by Luke Stangel Contributing writer- Silicon Valley Business Journal

Posted in Ben Horowitz, Entrepreneurship, Luke Stangel, Sillicon Valley Business Jouranal, Startups, Uncategorized, tagged , , , , on July 17, 2013| Leave a Comment »

Ben Horowitz warns startups: You’re worth less today, and you need to be OK with that

Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.Andreessen Horowitz Partner Ben Horowitz says the fundraising environment for startups is particularly tough today. He says investors are increasingly pushing for more equity for less capital, and founders need to be OK with that.

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Contributing writer- Silicon Valley Business Journal

Legendary venture capitalist Ben Horowitz (who makes up the second half of Andreessen Horowitz) has a particularly bleak message for entrepreneurs raising money in the Valley right now: You’re probably worth less to investors today than you were the last time you raised money.

“If you are burning cash and running out of money, you are going to have to swallow your pride, face reality and raise money even if it hurts,” Horowitz wrote in a blog entry Tuesday. “Hoping that the fundraising climate will change before you die is a bad strategy because a dwindling cash balance will make it even more difficult to raise money than it already is, so even in a steady climate, your prospects will dim. You need to figure out how to stop the bleeding, as it is too late to prevent it from starting. Eating s— is horrible, but is far better than suicide.”

He’s partly talking to founders raising an A or B round—entrepreneurs who’ve been to the table at least once before, and raised earlier rounds at a particularly high valuation. The fundraising climate is tougher now, he says. Investors have more leverage and they’re increasingly pushing founders to accept “down rounds,” defined as funding that values their company for less than they were worth in a previous round.

“After, God willing, you successfully raise your round and it’s a down round or a disappointing round, you will need to explain things to your company,” Horowitz writes. “The best thing to do is to tell the truth. Yes, we did a down round. Yes, that kind of sucks. But no, it’s not the end of the world.”

Horowitz knows the feeling.

Twelve years ago, he and Marc Andreessen were entrepreneurs themselves, running a red-hot startup called Loudcloud. In June 2000, they raised $120 million from investors, at an $820 million valuation. By the end of the year, the dot-com bubble was popping fast, and they couldn’t raise another round. To stay afloat, they were forced to take the company public in 2001, at a $560 million valuation.

Describing that experience, Horowitz writes, “In some sense, you are like the captain of the Titanic. Had he not had the experience of being a ship captain for 25 years and never hit an iceberg, he would have seen the iceberg. Had you not had the experience of raising your last round so easily, you might have seen this round coming. But now is not the time to worry about that. Now is the time to make sure that your lifeboats are in order.”

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5 Habits of Great Startup CEOs by Scott Johnson – Partner New Atlantic Ventures

Posted in Business Strategy, Entrepreneurship, Management, New Atlantic Ventures, Scott Johnson, Uncategorized, Venture Capital, tagged , , , , on May 2, 2013| Leave a Comment »

April 5 2013
by Scott Johnson

5 Habits of Great Startup CEOs

Being CEO of a startup is quite similar to being the parent of a newborn.  The neighbors see a clean cooing newborn with smiling proud parents.  But we all know what goes on inside the house.  Sleepless nights, stress, no time to attend to other relationships.  You are a slave to the new creature.  It is ultimately incredibly rewarding, but parenting is very hard work and not at all glamourous.  And just the way not everyone handles parenting well, not everyone is a good candidate to run a startup.  As a matter of fact, a great startup CEO is as rare as a 70 degree day in March in Boston.

I have compiled the qualities that great startup CEOs share – you know – the CEOs that actually get multiple B-round term sheets in down markets and get that marquis exit at an unusually high multiple.  These are the ones that consistently surprise their board on the upside, investors love to back, and that acquirers pay up to bring in-house.  If you are a founder looking for a CEO to really grow your company, here are the five personal attributes you should look for:

1) Attracts Great Talent.  This is the best indicator of success, as it really encompasses all of the other attributes.  If A+ talent flocks to work for someone, that person has got something special.  Be careful though.  An orangutan could be CEO of super fast growing startup and attract great talent.  So, make sure it is the CEO who can attract talent, not someone riding the wave at a hot company.

2) Networking God.  A good CEO shortens sales cycles with contacts, shortens hiring time with contacts, and shortens fundraising time with contacts.  A CEO who networks well can hence shorten time to exit and massively reduce dilution to founders.  Give 8% to a great CEO, prevent 20-30% or more in downstream dilution.

3) High Intelligence.  The CEO is usually not the highest IQ in the room.  But he needs to be in the conversation.  At high tech startups, a certain acumen is needed to keep the respect of the troops, and gain the respect of customers and investors.

4) Strategic Thinker.  The trick with startups is to channel all of the companies limited resources in the optimal direction.  And to quickly alter course as markets dictate so not a single moment is wasted by indecision.  This requires strategic thinking, not tactical execution.  Many line executives from larger companies struggle as CEOs of startups because they  have not had the opportunity to deviate from a strategy that was handed down to them from above.

5) Stamina, Energy and Productivity.  This gets back to my point at the top about parenting a newborn.  The CEO needs to be all-in, and one of those productive people that doesn’t waste a second of his or her day.  The CEO sets the culture at a company, and that should be one of reward for achievement, productivity, hard work, and accountability.

So, there you go.  Every founder CEO should be very honest in his or her self assessment, and then when they see someone with the above profile, move quickly to hire them.  But do your diligence.  Hiring the wrong CEO can be every bit as costly as hiring the right one can be helpful.

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Foundation’s Paul Holland: Smaller fund, smaller fundings right for times by Cromwell Schubarth Senior Technology Reporter- Silicon Valley Business Journal

Posted in Paul Holland, Sillicon Valley Business Jouranal, Startups, Technology, Venture Capital, tagged , , , , , on April 10, 2013| Leave a Comment »

Apr 10, 2013, 12:03pm PDT

Foundation’s Paul Holland: Smaller fund, smaller fundings right for times

Foundation Capital Partner Paul Holland says the firm’s latest fund is smaller than the previous ones by design, a reaction to how little startups need these days to get off the ground.

Senior Technology Reporter- Silicon Valley Business Journal

A lot has happened in the year that Foundation Capital started raising money for its seventh fund, according to Partner Paul Holland.

Instead of what had been reportedly planned as a half billion fund, the Menlo Park firm on Tuesday closed a $282 million pool to invest from.

“Startups don’t need as much money now, thanks to the cloud and other factors,” Holland told me. “Startups are using about 40 percent less capital, on average, so we don’t need as much capital to invest.”

He said the smaller fund size was a conscious reaction to the changing startup environment.

“We raised our last fund, which was $750 million in 2008, when we thought we would be doing more cleantech and later-stage deals,” he said. “It took us five years to invest, which is frankly too long. We wanted to have a fund that we thought we could finish investing in three years.”

The new fund will be targeting about 60 percent of its cash at IT startups, about 30 percent to 35 percent at consumer startups and up to 10 percent in cleantech.

“We do about two-thirds of our investments in seed or Series A rounds but we will invest in later rounds when we find something that suits us,” Holland said.

There will be right of the firm’s 13 partners investing from the fund, including new partner Anamitra Banerji, who developed Twitter’s ad platform as one of the micro-blogging company’s earliest employees.

“We have a heritage of partners who stay around for quite a while after they have finished actively investing,” Holland said. “They stay involved with the firm and with the companies they have invested in.”

General Partner Rich Redelfs is the only partner who has newly stepped back from investing, he said.

Despite working with a smaller fund, Holland said he is more excited about the startups he sees now than he was 10 years ago.

“There is a real tailwind behind early stage investing right now,” he said. “The difference between now and 10 years ago is night and day. It’s a lot easier to create returns on small amounts of money now than ever in my experience.”

Click here to subscribe to TechFlash Silicon Valley, the daily email newsletter about startups, venture and angel investors.

Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.

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