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Venture capital investing stays hot

It’s a fine time to be a tech entrepreneure

Investors are funding companies at record pace, writing checks — big, big checks — to startups large and small that are creating everything from business software to cures for crippling diseases. A new report out this week shows that last quarter was the largest for venture capital investments in Silicon Valley since 2000 — an astonishing $9.1 billion — refuting, for the time being, any murmurs of a slowdown or inevitable market correction.

This market is hot, and appears to be staying hot.

“People are getting funded all the way up the food chain,” said Tom Ciccolella, U.S. venture capital leader for PricewaterhouseCoopers. “Any aspiring entrepreneurs looking for money, they seem to be getting funding.”

The Airbnb website is displayed on a laptop on April 21, 2014 in San Anselmo, California. San Francisco-based Airbnb raised $1.5 billion in the past

The Airbnb website is displayed on a laptop on April 21, 2014 in San Anselmo, California. San Francisco-based Airbnb raised $1.5 billion in the past quarter at a $25.5 billion valuation, making it the third-most-valued venture-backed company in the world, according to data from Dow Jones. (Justin Sullivan/Getty Images)

The only time investors doled out more cash was the second quarter of 2000, when companies raised $9.3 billion, according to The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. Adjusted for inflation — which the report does not do — that’s about $13 billion.

The $9.1 billion raised represents a 50 percent increase over the first quarter this year and a 16 percent increase over the same three-month period a year ago.

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 The eyebrow-raising amounts will likely amplify chatter about another tech bubble, but VCs show no sign of slowing their investment pace, always in search of the next Facebook and Uber. U.S. venture capital firms raised $10.3 billion during the second quarter this year to fund the next-generation of startups, the largest amount since 2007, according to a report out earlier this month by the National Venture Capital Association. And as long as there is money for the taking, entrepreneurs are quick to stick out their hand.

“The opportunities to disrupt and innovate only happen every so often, so you need to be there in force,” said Jeffrey Grabow, U.S. venture capital expert at consulting firm EY. “You can’t just wade in.”But, he added: “We’re definitely in an up cycle, and it could last for several quarters, but at some point it has to end. And that doesn’t necessarily have to be the end of the world.”

Much of the venture funding in the second quarter went to the usual suspects — hot companies with rapid growth and already-big valuations that have investors salivating, such as Lyft and Pinterest — but data show VCs are also writing checks in the mid-nine figures to newer and lesser-known Silicon Valley firms. Denali Therapeutics, a South San Francisco company researching treatments for neurodegenerative diseases, raised $217 million in May in its first funding round, according to MoneyTree. And Zenefits, a 2-year-old HR software provider based in San Francisco and widely considered the fastest-growing company of its kind, raised $500 million that same month.

“I think of this like a car — if you want to go really far, really fast, you’re going to burn a lot of gasoline,” said Parker Conrad, Zenefits CEO and co-founder.”So we made the mother of all pit stops to fill up on gasoline and beef jerky for the trip ahead.”

But even in a time of plenty, there are the occasional busts. On Friday, San Francisco-based Homejoy, a website to find professional cleaners, announced it would shut down at the end of the month. The startup had raised about $40 million from investors but had struggled to raise any new funding since 2013.

The involvement of hedge funds, private equity groups and sovereign wealth funds in what have traditionally been pure venture deals continues to drive up the price tag on funding rounds. And despite the dollar amount of funding going up, the number of deals has remained fairly steady — hovering between 300 and 400 each quarter in Silicon Valley for the past few years and averaging 1,093 a quarter nationally, according to MoneyTree. The result is that a handful of companies, most of which are approaching an initial-public offering, are receiving a disproportionate chunk of the money.

Nationally, the top eight deals received over one-third of the total investments for the quarter — $17.5 billion. Topping the list was San Francisco-based Airbnb, which raised $1.5 billion at a $25.5 billion valuation, making it the third-most-valued venture-backed company in the world, according to data from Dow Jones. And Jawbone, the wearables fitness tracking device company in San Francisco, raised $300 million at a $3.3 billion valuation.

“They are raising money because they can, and they have great growth plans,” Ciccolella said of the billion-dollar companies, also known as “unicorns.”

Many of these so-called unicorns are expected to soon become public companies. If they go public at a valuation lower than the valuation they received in the private market — which many think is inevitable, because the public markets won’t stomach, say, a $50 billion valuation for Uber — it’s possible these big funds will rethink their investing strategy and take their money elsewhere.

“There will be a time when not as much capital is available with as much apparent ease, and companies will have to deal with that,” Grabow said.

For some VC firms, the bigger rounds mean fewer investments — and bigger risks. When investing partner Tomasz Tunguz joined Redpoint Ventures in 2008, the average investment for the firm was about $3 million to $5 million, he said. Now, it’s $10 million.

“You’ve got half as many shots on goal,” he said. “You’ve got to be doubly sure.”

Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.

Top Silicon Valley VC deals for Q2

Airbnb, $1.5 billion (San Francisco)Zenefits, $500 million (San Francisco)
DocuSign, $278 million (San Francisco)
Denali Therapeutics, $217 million (South San Francisco)
Aduro Biotech, $200 million (Berkeley)

 

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Silicon Valley VC confidence drops for first time in 2 years

 

A third quarter survey shows the first drop in Silicon Valley VC confidence in two years.

Senior Technology Reporter- Silicon Valley Business Journal

Confidence among Silicon Valley venture capital investors dropped for the first time in two year in the third quarter, according to a new survey.

The report from the University of San Francisco is the latest sign of nervousness among VCs as startup valuations hit the roof and a growing number of IPOs are underperforming or being delayed.

Among the VC-backed companies that have decided to delay offerings are Los Altos-based Box and Sunnyvale-based Good Technology. Bloomberg reports that Zoosk, GoDaddy and Yodle also may wait until next year.

The survey also comes after various reports indicated strong but slowing venture funding in the third quarter.

The survey managed by Prof. Mark Cannice asked 33 VCs in the region to rank their confidence on a five-point scale, with one being low and five being high.

The third quarter index came in at 3.89, which is still relatively high, but is down from the 4.02 registered in the second quarter. It is the first drop recorded since early 2012.

“The break in the upward trend could indicate slowing momentum going forward as the VC confidence reading is future oriented,” Cannice wrote in his report.

Some prominent VCs, including Bill Gurley of Benchmark and Marc Andreessen of Andreessen Horowitz, have publicly warned startups to be careful not to burn through too much of their cash at this time.

One of the VCs in the survey who is growing more cautious is Robert Ackerman of Allegis Capital.

“While the engine of innovation is running at full speed, there is considerable risk of overheating, particularly in consumer sectors,” he said. “The excess of capital available to these companies is inflating both valuations and their wage costs. The laws of gravity remain universal and, at some point, we can expect to see a reconciliation between hype and hope.”

Jon Soberg of Expansive Ventures said, “The ‘bubble’ talk has grown louder, especially discussion about high valuations and burn rates. I expect VCs will be more conservative in the coming months and will fulfill the predictions of things slowing down. I still see great innovation and opportunities, and I expect that we will continue to see great companies being built and scaled, but possibly with a little lower valuations.”

An interesting twist may be that as venture-backed companies wait longer to exit through an IPO or acquisition, they become more vulnerable to shifting global macro-economic factors.

“With market demand lagging in China and in most of Europe, many companies are finding it difficult to forecast 2015 international sales,” Kurt Keilhacker of Techfund Capital said. “As a result, many U.S. companies are forecasting modest growth with the headwinds of softening demand internationally and an appreciating U.S. dollar.”

Despite signs of weakening exits, a number of the VCs in the survey remain confident.

Venky Ganesan of Menlo Ventures said, “The major trends driving entrepreneurial growth remain intact — mobile and social for consumers; cloud and Big Data for enterprises. The world we live in is being refashioned by these trends and we are in the second inning of the game. There will be some short term perturbations and some of the excesses we see in certain sectors will get curtailed, but the long term secular trend remains intact.”

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Cromwell Schubarth is the Senior Technology Reporter at the Silicon Valley Business Journal.

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Marc Andreessen Sounds Warning on Start-Ups Burning Cash

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Marc Andreessen, a venture capitalist.
Marc Andreessen, a venture capitalist.Credit Chip Somodevilla/Getty Images

Fretting over a possible downturn in Silicon Valley is now a mainstream pursuit.

Marc Andreessen, the prominent venture capitalist, took to Twitter on Thursday to warn against excessive spending by start-ups that have attracted capital from investors. Companies that spend money on fancy offices or too many employees, he said, could be in trouble when the market turns.

Mr. Andreessen is one of several technology insiders to recently raise such concerns. DealBook reported in August that, with capital flowing freely and start-up valuations soaring, some start-ups were raising cash as an insurance policy against leaner times. Bill Gurley, a partner at the venture capital firm Benchmark, warned in an interview with The Wall Street Journal that “no one’s fearful, everyone’s greedy, and it will eventually end.” Fred Wilson, a partner at Union Square Ventures, later wrote a blog post about excessive “burn rates.”

But Mr. Andreessen’s Twitter lecture was notable because he has been one of the most vocal opponents of the idea that Silicon Valley is currently in a bubblelike environment.

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Top Venture Capitalist Keith Rabois Shares His 8 Principles For Building A Company

Keith Rabois, a successful venture capitalist at Khosla Ventures and former PayPal and Square exec, tweeted out his eight principles for building a successful company.

For anyone out there working on a startup, or just trying to lead an organization, these are pretty great:

 

Rabois

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Rabois

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Rabois

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Rabois

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Rabois

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Rabois

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Rabois

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Rabois

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Silicon Valley VC hottest since crash; Meet No. 1 investors by sector

Venture investing in Silicon Valley hit its highest level since the 2009 financial crisis, a new report from CB Insights shows. Click through the photo gallery to see who the top investors in the hottest trends are.

Senior Technology Reporter- Silicon Valley Business Journal
Big Data, mobile, digital health and the Internet of Things are a few of the hottest trends in Silicon Valley these days and a new report shows who the biggest investors in those sectors are.

The Silicon Valley Venture Capital Almanac, which compares VC and angel investments in the region since 2009, shows data and Internet technology investments are dominating in the region today where the sector once shared top billing with health and cleantech.

“There used to be three main areas that the Valley dominated in, but cleantech and health have given way and tech investing is by far No. 1 today,” according to Anand Sanwal, CEO of CB Insights. His research firm wrote the report for Silicon Valley Bank, Orrick and GLG Share.

The number of deals and dollars in the third quarter were the highest they have been since the financial crisis of 2009, with 267 fundings and $2.8 billion invested here, the report also shows.

Here is a look at who the almanac says are the big dogs in the hottest trends in tech investing in the region. All of the totals are based on the number of funding deals they have done since 2009. Click through the accompanying photo gallery for more detail:

Most active in Internet deals: SV Angel, 111.

Most active in mobile deals: SV Angel, 41.

Most active in ad tech deals: 500 Startups, 15.

Most active in Big Data deals: Lightspeed Venture Partners, Khosla Ventures, tied with 11 each.

Most active in finance tech deals: Andreessen Horowitz, Google Ventures, tied with 9 each.

Most active in digital health deals: Felicis Ventures, 7.

Most active in Internet of things deals: Intel Capital, Kleiner Perkins Caufield & Byers, tied with 5 each.

Here is a look at who the most active overall investors have been since 2009:

Most active investor: SV Angel, 156 deals.

Most active corporate VC: Google Ventures, 89 deals.

Most active seed investor: 500 Startups, 106 deals.

Most active late stage investor: Sequoia Capital, 26 deals.

Click here to see the Silicon Valley Venture Capital Almanac online.

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