The State of Venture Capital March 2, 2002 John Gabbert Sr. Director, Worldwide Research VentureOne Corporation
Three Key Elements for a Robust Venture Industry Fundraising Investment Liquidity
Fundraising
Venture Capital Fundraising Healthy in 2001 Commitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne
But Momentum is Slowing Commitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne
Fundraising Far Outpaces Investment in 2001 Fundraising vs. Amount Invested Amount Invested ($B) Source: VentureOne
Fundraising Summary Commitments to venture capital were flat in 4Q01; however, 2001 fundraising was still well above the norm. Fundraising is becoming more difficult, especially for newer or unproven funds. Over half of VC dollars are now in funds greater than $500 M. Greatest amount of VC money in history available to invest in entrepreneurship.
Investment: Overall
2001: A Sharp Contrast to 2000’s Boom Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne
Investment Levels Off at Year’s End Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne
Median Round Size Gets a Boost in 4Q’01 Median Amount Invested Per Round Median Amount Invested ($M) Source: VentureOne
Positively Affecting Later-Stage Rounds Median Amount Invested by Round Class Median Amount Invested ($M) Source: VentureOne
Investment Shifts to Second & Later Rounds Deal Flow by Round Class % of Deals Source: VentureOne
IT Dominates, Healthcare Recaptures Investor Interest Equity Investment by Industry Sector % of Investment Source: VentureOne
IT Investment Still Falling Equity Investment in Information Technology Companies Amount Invested ($B) Number of Deals Source: VentureOne
Communications, Software Are Cornerstones of IT IT Investment by Sector % of Internet Investment Source: VentureOne
Investment: Valuations
2001 Valuations Fall Below 1999 Levels Median Premoney Valuation by Year Median Premoney Valuation ($M) Source: VentureOne
Valuations Recover Somewhat in 4Q’01 Median Premoney Valuation Median Premoney Valuation ($M) Source: VentureOne
Later-Round Valuations Boost Overall Numbers Median Premoney Valuations by Round Class Median Premoney Valuation ($M) Source: VentureOne
Healthcare Valuations Up Significantly Median Premoney Valuations by Industry Median Premoney Valuation ($M) Source: VentureOne
Investment: Regions
Texas Edges Out Boston for #3 Spot 2001 Regional Investment in the US Source: VentureOne
Bay Area Investment Stabilizes Investment in Bay Area Venture-Backed Companies Amount Invested ($B) Source: VentureOne
Equity Financing Summary Equity financing into venture-backed companies leveled off in 4Q’01. Overall equity investment in 2001 was still the third highest amount on record. Valuations and median round sizes recovered slightly at year’s end. Early-stage venture financing has fallen more rapidly than later-stage. The time between financing rounds is expanding.
Liquidity
M&As Continue to Slip Transactions and Amount Paid in M & As Amount Paid ($B) Source: VentureOne Number of Transactions
IPO Liquidity Up Marginally in 4Q01 … Deals and Amount Raised Through IPOs Amount Raised ($B) Venture-Backed IPOs Source: VentureOne
Liquidity Summary The IPO and M&A markets for venture-backed companies continued their dramatic declines from the record levels of 1999 and early IPO volume in 2001 was at its lowest in years. The amount paid in M&A transactions declined throughout 2001, falling to the lowest level since IPO companies in 2001 were more mature, but the time from initial funding to M&A is still falling.
Conclusions & Implications t The bad news: - Liquidity is extremely difficult - VCs are investing much more slowly and cautiously - Valuations are down across the board - Many VC-funded companies will fail to raise more $ t The good news: - Liquidity windows open and close - VCs do have money to invest - Expectations are much more realistic - Those companies that succeed in raising $ will have more board involvement, better resources, lower costs and less competition - Truly great companies will emerge from this period
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