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Posts Tagged ‘VC funding’

Jan 6, 2014, 7:38am PST

Series A funding crunch be damned, VCs say full speed ahead!

500 Startups, led by co-founder Dave McClure, was the most active VC seed investor again in 2013, according to a new report from CB Insights.

Senior Technology Reporter- Silicon Valley Business Journal

Seed funding by venture capital firms hit a four-year high in 2013, according to a new report, despite growing concerns about pending Series A financing crunch.

There was $893 million invested in 843 seed deals last year, according to funding research firm CB Insights, the most since 2009.

The report only examined the seed rounds that included funding from venture firms, a growing proportion of total startup funding over the past four years.

The surge in seed funding by VCs comes despite concerns that a swelling number of startups won’t be able to attract later stage money from venture firms when they need Series A funding to grow.

The top three seed venture investors were the same as in 2012, with 500 Startups repeating at No. 1. Andreessen Horowitz moved up to No. 2 and SV Angel dropped to No. 3.

The number of VC firms actively investing in seed rounds remained level at 112, but that is nearly double the number from 2012 and almost triple the 2011 tally.

The amount of seed financing by VCs in 2013 was 22 percent higher than in 2012 and 74 percent higher than in 2011. Last year’s third quarter was the biggest in this time span, with $257 million invested across 253 unique funding deals.

The average amount invested in each deal in the fourth quarter of 2013 was $1.5 million, up 50 percent over the last four years. The median was up nearly two-thirds in that same time.

The number of seed funding deals more than doubled in two startup sectors: education/training and human relations/work force management. Funding also more than doubled in those two sectors, as well as for startups in the payments business.

The biggest declines were in photography, gaming and news.

Click here to read CB Insights blog about seed funding by venture firms in 2013 and here to see its blog about who the top VC seed investors are.

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

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Article from GigaOm.

There’s a lot of talk in Silicon Valley about a bubble in VC investing right now, with the $1 billion purchase of Instagram by Facebook seeming emblematic of high valuations for social apps without a clear revenue stream or inherently altruistic purpose. So many are wondering: could the tech industry shift toward more investment in startups that cure cancer or find solutions for clean energy? The answer depends who you ask.

A panel of investors and startup founders speaking at Venture Shift on Thursday debated whether there really is a bubble in venture capital right now, and whether the talent and money in the startup area is directed at solving the best problems.

Marcus Ogawa, a managing partner at Quest, said Instagram’s sale will absolutely inspire a proliferation of photo and video-sharing apps, perhaps more than most customers really need.

“It’s a complete and total waste of money. But I don’t want to live in a planned economy,” he said, pointing out the incredible amount of innovation and development that comes from the growth of those companies.

There’s certainly plenty of money going in that direction right now. A report from CB Insights this week found that the most recent quarter saw $8.1 billion in venture capital financing for 812 companies, the highest in both dollar amount and number of deals since the same quarter of 2001. And of that funding, 13 percent of deals were in the mobile sector with 30 percent of those companies involved in photo or video technology.

So are there more meaningful companies that aren’t getting funded because of the so-called Instagram effect?

“You see people graduating from top tech schools… and they’re starting companies in internet and mobile,” said Corey Reese, CEO and co-founder at Ness Computing. “They’re not starting companies to enhance the life expectancy, by and large.”

But Jessica Alter, founder of the startup Founder Dating, pointed out that one of the reasons so many social consumers apps are getting funded is that the costs associated with starting them are much lower. Cloud technology and open-source code have made it cheaper to start and launch those businesses, making them some of the more visible success stories compared to companies in the biotech or clean energy spheres, even if accelerator and incubator programs for health care startups do exist.

“It’s all going down, but nothing’s going down as much as the cost of starting a new consumer app,” she said.

Read more here.

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Article from Fenwick & West LLP.

Background —We analyzed the terms of venture financings for 113 companies headquartered in Silicon Valley that reported raising money in the third quarter of 2011.

Overview of Fenwick & West Results

  • Up rounds exceeded down rounds in 3Q11 70% to 15%, with 15% of rounds flat.  This was an increase from 2Q11 when up rounds exceeded down rounds 61% to 25%, with 14% of rounds flat.  Series B rounds were exceptionally strong, comprising 38% of the relevant rounds (Series A rounds aren’t included as there is no prior round for comparison purposes), and 89% of the Series B rounds were up rounds.  This was the ninth quarter in a row in which up rounds exceeded down rounds.
  • The Fenwick & West Venture Capital Barometer™ showed an average price increase of 69% in 3Q11, a slight decrease from the 71% increase registered in 2Q11.  However, we note that one internet/digital media company had a 1,500% up round, and that if such round was excluded the Barometer would have been 54%.  This was also the ninth quarter in a row in which the Barometer was positive.
  • Interpretive Comment regarding the Barometer. When interpreting the Barometer results please bear in mind that the results reflect the average price increase of companies raising money this quarter compared to their prior round of financing, which was in general 12‑18 months prior.  Given that venture capitalists (and their investors) generally look for at least a 20% IRR to justify the risk that they are taking, and that by definition we are not taking into account those companies that were unable to raise a new financing (and that likely resulted in a loss to investors), a Barometer increase in the 30-40% range should be considered normal.
  • The results by industry are set forth below.  In general internet/digital media was the clear valuation leader, followed by software, cleantech and hardware, with life science continuing to lag.
Overview of Other Industry Data
  • After 2Q11 there was reason to believe that the venture environment was improving, but the results were more mixed in 3Q11.  While the amount invested by venture capitalists in 3Q11 was healthy, the amount raised by venture capitalists was significantly off the pace set in the first half of the year.  As a result, venture capitalists are continuing to invest significantly more than they raise, an unsustainable situation (and one that perhaps provides increased opportunities for angels and corporate investors).  IPOs also decreased significantly in 3Q11, although M&A activity was up.  The internet/digital media industry continued to lead, while life science continued to lag.

    However there are some clouds on the horizon, as the Silicon Valley Venture Capital Confidence Index declined for only the second time in 11 quarters, there are reports of a number of IPOs being recently postponed and the world financial environment is undergoing substantial turbulence.

    Detailed results from third-party publications are as follows:

    • Venture Capital Investment. Venture capitalists (including corporation-affiliated venture groups) invested $8.4 billion in 765 deals in the U.S. in 3Q11, a 5% increase in dollars over the $8.0 billion invested in 776 deals reported for 2Q11 in July 2011, according to Dow Jones Venture Source (“VentureSource”).  The largest Silicon Valley investments in 3Q11 were Twitter and Bloom Energy, which were also two of the three largest nationwide.  Northern California received 38% of all U.S. venture investment in 3Q11.

      The PwC/NVCA MoneyTree™ Report based on data from Thomson Reuters (the “MoneyTree Report”) reported slightly different results – that venture capitalists invested $7.0 billion in 876 deals in 3Q11, a 7% decrease in dollars over the $7.5 billion invested in 966 deals reported in July 2011 for 2Q11.  Investments in software companies were at their highest quarterly level since 4Q01, at $2.0 billion; investments in internet companies fell to $1.6 billion after the ten year high of $2.4 billion reported in 2Q11, and life science and cleantech investments fell 18% and 13% respectively from 2Q11.

      Overall, venture capital investment in 2011 is on track to exceed the amount invested in 2010 according to both VentureSource and the MoneyTree Report.

    • Merger and Acquisition Activity. Acquisitions (including buyouts) of U.S. venture-backed companies in 3Q11 totaled $13 billion in 122 deals, a 33% increase in dollar terms from the $9.8 billion paid in 100 deals reported in July 2011 for 2Q11, according to Dow Jones.  The information and enterprise technology sectors had the most acquisitions, and the acquisition of PopCap Games by Electronic Arts for $750 million was the largest acquisition of the quarter.

      Thomson Reuters and the National Venture Capital Association (“Thomson/NVCA”) also reported an increase in M&A transactions, from 79 in 2Q11 (as reported in July 2011) to 101 in 3Q11.

    • Initial Public Offerings.  Dow Jones reported that 10 U.S. venture-backed companies went public in 3Q11, raising $0.5 billion, a significant decrease from the 14 IPOs raising $1.7 billion in 2Q11.  Perhaps of greater concern is that six of the IPOs occurred in July, with only four in the latter two months of the quarter, and half of the 10 companies went public on non-U.S. exchanges (one each on AIM, Australia and Tokyo, two on Taiwan).  By comparison, all 25 companies going public in the first half of 2011 went public on U.S. exchanges.

      Similarly, Thomson/NVCA reported that only five U.S. venture-backed companies went public in the U.S. in 3Q11 (they do not include offerings on foreign exchanges), raising $0.4 billion, a substantial decrease from the 22 IPOs raising $5.5 billion reported in 2Q11.  This was the lowest IPO level in seven quarters.  Of the five IPOs, four of the companies were based in the U.S. and one in China, and four were IT-focused and one was life science-focused.  The largest of the IPOs was China-based Tudou, raising $0.2 billion.

      At the end of 3Q11, 64 U.S. venture-backed companies were in registration to go public, an increase from 46 in registration at the end of 2Q11.

    • Venture Capital Fundraising. Dow Jones reported that U.S. venture capital funds raised $2.2 billion in 3Q11, a significant decline from the $8.1 billion raised in the first half of 2011.  2011 is on track to be the fourth year in a row in which venture capital fundraising will be less than investments made by venture capitalists, and by over $30 billion in the aggregate.

      Similarly, Thomson/NVCA reported that U.S. venture capital funds raised $1.7 billion in 3Q11, a substantial dollar decrease from the $2.7 billion reported raised by 37 funds in 2Q11.

    • Venture Capital Returns. According to the Cambridge Associates U.S. Venture Capital Index®, U.S. venture capital funds achieved a 26% return for the 12-month period ending 2Q11, less than the Nasdaq return of 31% (not including any dividends) during that period.  Note that this information is reported with a one quarter lag.
    • Sentiment. The Silicon Valley Venture Capitalist Confidence Index® produced by Professor Mark Cannice at the University of San Francisco reported that the confidence level of Silicon Valley venture capitalists was 3.41 on a 5 point scale, a decrease from the 3.66 result reported for 2Q11, and the second quarter of decrease in a row.  Venture capitalists expressed concerns due to the macro economic environment, the uncertain exit environment, high company valuations and regulatory burdens.  The divergence between the internet/digital media industry, which has performed well, and the lagging life science industry, was also noted.
    • Nasdaq. Nasdaq decreased 13% in 3Q11, but has increased 10% in 4Q11 through November 14, 2011.

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Article from GigaOM

“Foursquare has raised $50 million in a new funding round led by venture capital firm Andreessen-Horowitz, the company announced Friday. This latest batch of funding brings Foursquare’s total venture capital investment to just over $70 million.

The New York City-based startup, which provides a service that allows users to share their current location with friends, plans to put the money toward hiring more engineers, developing more offerings for merchants, and expanding internationally, co-founders Dennis Crowley and Naveen Selvadurai wrote in a company blog post announcing the new funding. The blog post reads: “The opportunity to build something meaningful in the location space is HUGE [emphasis theirs], and we feel well-positioned to capitalize on it.”

Foursquare has grown by leaps and bounds since its launch in March 2009. The company, which is set to open a new San Francisco office this month, says it currently has more than 10 million users and more than 70 employees. With a growing list of solid competitors in the location-based social networking space — think Facebook and Google, as well as an ever-expanding list of smaller apps such as Trover — the new backing will certainly come in handy as Foursquare works to keep its edge.”

Read original post here.

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Outlined below is an article from Cooley Godward Kronish LLP on Venture Capital  market indicators.

“Palo Alto, Calif. – Feb. 18, 2010 – Cooley Godward Kronish LLP today released its most recent report on venture capital financing market terms.  The report analyzes Cooley’s venture capital transactions nationwide that closed during the fourth quarter of 2009, with comparisons to the first three quarters of 2009 and prior years. The analysis is based on 376 completed deals across the United States totaling approximately $3.82 billion during 2009, including 98 completed deals totaling approximately $1.1 billion during the fourth quarter.

Highlights from the fourth quarter of 2009 include:

• The percentage of up rounds in the fourth quarter (45 percent) saw a considerable increase compared to the first three quarters (26 percent)
• The percentage of down or flat rounds continues to outpace the number of up rounds
• While still below recent historical annual averages, fourth quarter median pre-money valuations increased for all series as compared to the prior three quarters of 2009

“The increases in the number of deals, average pre-money valuations and aggregate dollars raised in the fourth quarter point to a potentially improving landscape for venture financing deals,” said Craig Jacoby, head of Cooley’s Emerging Companies practice.

Cooley’s Private Company Financings Report is published quarterly and is based on private company transactions in which Cooley served as counsel to either the issuing company or the investors. A complete version of the report is available here.”

Read the full article here.

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Here is some possitive news from VC Circle.

“The ongoing recovery in the economy and credit markets has made tech companies look for ways to come out on top.

The U.S. information technology services sector is likely to be a focus of merger and acquisition activity as its companies are among the most attractive in the technology space.

A rebound in tech spending has increased the appeal of IT services companies and put them in the crosshairs as deal momentum picks up in the industry.

The ongoing recovery in the economy and credit markets has made tech companies look for ways to come out on top, and they have shown a willingness to pay hefty premiums in a sector that has historically commanded high prices.

IT services firms have a recurring revenue stream, high margins, a strong growth outlook and impressive returns on investment, making tempting targets for buyers. They offer consulting, software services, business process outsourcing, systems integration and interactive marketing.

Cash-rich technology giants plan to strengthen their portfolios, and smaller firms want to stay in the game through acquisitions as their larger rivals become even more formidable.

Attractive acquisition candidates include Sapient, Computer Sciences, WNS, Amdocs, Cognizant Technology and ExlService, analysts said.

Consolidation is under way. In September, Xerox Corp said it would buy Affiliated Computer Services Inc in a deal valued at about $5.5 billion, and Dell Inc said it planned to buy Perot Systems Corp for about $3.9 billion.

“The pattern here is that you have commoditizing tech product companies looking for a strategy that’s better than doing nothing,” Sanford C. Bernstein analyst Rod Bourgeois said.

“They’re looking at the IT services industry to juice up their struggling tech product business.”

Possible acquirers could be tech giants such as IBM, Hewlett-Packard or Cisco, European players like BT or Deutsche Telekom and Asian companies like Hitachi, Fujitsu or NEC, analysts said.

“There’s definitely going to be some strategic acquisitions — there’s no doubt about that,” Goldman Sachs analyst Julio Quinteros said. “It’s just, how much are you willing to pay? And would you rather wait for the market to come back a little bit?”

The recurring revenue stream that IT services firms have gives them more visibility and stability.

“What’s driving a lot of this is the evolution of hardware companies looking for more stability and recurring revenues that are typically associated with services models and by the same token software companies potentially looking for the same thing,” Quinteros said.

Hardware and software companies want to diversify their portfolios by adding services, to help them survive and even prosper through tough times.

“What’s alluring about services for tech product companies is first the precedent of IBM and HP coupling products with services to be able weather the downturn well,” Bourgeois said.

In 2008, Hewlett-Packard acquired EDS for $13 billion in what is considered the biggest acquisition in the space ever. In 2002, IBM bought PwC Consulting from PricewaterhouseCoopers for about $3.5 billion.

“Vendors are trying, to some extent, to emulate the integrated model that IBM really pioneered when they got into the services business years ago,” UBS analyst Jason Kupferberg said. “HP followed suit buying EDS. Now you’re seeing a continuation of that theme.”

Read the full article here.

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Here is a interesting article from WSJ Online.

“Twitter Inc.’s $100 million funding round drew considerable attention for its massive size, but it’s not the largest venture deal so far this year. That round actually tied for the fourth largest, according to data compiled from Dow Jones VentureSource.

Here’s a list of the Top 10 venture capital rounds through the third quarter. The deals are impressive considering the cloud hanging over the venture industry. Besides Twitter and another dot-commer, Facebook Inc., these companies range from massive clean-technology projects and health-care plays to wireless equipment makers and, in one case, a waste-collection service.

#1 Solyndra Inc., Fremont, Calif. – $286 million

The solar panel maker is on the federal government’s hot-list, receiving a $535 million loan guarantee in September to build a second manufacturing plant and create hundreds of jobs. That loan encouraged venture firms to invest at least another $198 million in Solyndra. (The company announced that amount in September though a spokesman told VentureWire the round’s total was even higher.) Argonaut Private Equity, an investment vehicle for Oklahoma billionaire George Kaiser, led the round. Others participating in the round weren’t disclosed, although Solyndra’s investors include CMEA Capital, Redpoint Ventures, RockPort Capital Partners, U.S. Venture Partners and Virgin Green Fund, which together have invested more than $600 million. Solyndra plans to finish building its plant in Fremont by the end of next year and ship its first product in early 2011.

#2 Clovis Oncology Inc., Boulder, Colo. – $146 million

In May, Domain Associates, New Enterprise Associates and others bet $146 million that former executives of cancer-drug company Pharmion Corp., which sold for $2.9 billion last year, will repeat that success with newly formed Clovis Oncology. Also participating were Pharmion investors Aberdare Ventures, Abingworth Management, ProQuest Investments and Versant Ventures, and newcomer Frazier Healthcare Ventures. Like Pharmion – which raised $145 million in venture capital and convertible debt before going public in 2003 – Clovis will acquire cancer therapies, develop them through to regulatory approval in the U.S. and Europe, and market them.

#3 Small Bone Innovations Inc., New York – $108 million

The orthopedic device company, founded in 2004, has developed a portfolio of products for thumb, hand, wrist, elbow, foot and ankle surgeries. The STAR Ankle total joint replacement system, one of Small Bone’s flagship products, received Food and Drug Administration clearance in May. The $108 million Series D round, which closed in April, included new investors The Family Office of Bahrain, Goldman Sachs & Co., Khazanah Nasional Brhd. and Malaysian Technology Development Corp. and existing investors 3i Group, Axiom Venture Partners, NGN Capital, TGap Ventures and Trevi Health Ventures. Executives told VentureWire they expect Small Bone to reach profitability in 12 months, and unlike many medical device companies which become acquisition targets, could grow into a full-fledged company in its own right.

#4 (Tied) A123 Systems Inc., Watertown, Mass. – $100 million

The electric-car battery maker’s initial public offering last month captured investors’ imagination – and wallets – with a vision of a future where power is stored intelligently and deployed efficiently in a world of lower carbon emission. Before the IPO, A123 Systems gathered $100 million in Series F funding in June from investors Gururaj Deshpande, General Electric Co., North Bridge Venture Partners and Qualcomm Inc. A123 also received a $249.1 million grant from the U.S. Department of Energy grant, the second-biggest awarded as part of a $2.4 billion program to start up a domestic battery industry. The company, which has a deal to supply Chrysler Group LLC with batteries for planned electric vehicles and hybrids, is said to be in the late stages of negotiations for another DOE loan worth as much as $235 million.

#4. (Tied) Facebook Inc., Palo Alto, Calif. – $100 million

Facebook recently reached an important milestone for an Internet company, becoming cash-flow positive as it also grabbed its 300 millionth member. Will an IPO be coming soon? Executives won’t say, but the company’s investors are counting on a spectacular exit at some point given how much money they’ve invested over the years. One of the newest investors is Digital Sky Technologies, a Russian Internet investor that put $100 million into Facebook in July while also paying another $100 million to buy out shares of any selling employees.

#4 (Tied) Open Range Communications Inc., Greenwood Village, Colo. – $100 million

One Equity Partners committed $100 million to Open Range at the start of the year to help it roll out wireless broadband and Internet services in rural America by the end of the year. The deal followed a $267 million loan from the U.S. Department of Agriculture’s Rural Development Utilities Program. Founded in 2004, Greenwood Village, Colo.-based Open Range hopes to reach more than six million Americans in 546 underserved and rural communities across the U.S. lacking access to traditional DSL or cable broadband service providers. Open Range plans to use WiMAX technology to enable access to its planned wireless service with a simple plug-in device.

#4 (Tied) Twitter Inc., San Francisco – $100 million

At a $1 billion valuation, Twitter’s $100 million fourth round proved the Web messaging company is here to stay, at least longer than some thought. The funding came from some unlikely sources, including T. Rowe Price Group, better known for its retirement funds than venture capital investing, Morgan Stanley, which invested from its asset management business, and Insight Venture Partners, a growth-equity investor that doesn’t typically put money in pre-revenue companies. Other investors in Twitter include Benchmark Capital, Institutional Venture Partners, Spark Capital and Union Square Ventures, which didn’t reinvest in the latest round reportedly because the deal priced the firm out. Now the pressure will be on for Twitter to live up to the hype.”

Read the full article here.

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