What Types of Innovation and Invention Might Attract Funding Dollars in the Downturn?

May 12, 2009

So it’s a pretty weighted question, but it’s exactly what BusinessWeek asked the much hyped YouNoodle (quick note: the site’s startup predictor, which uses an algorithm to predict how much your startup could be worth in three years, is a bit of a gimmick to draw people in, but the site has some interesting content like it’s YouNoodle Scores, which is a metric set up with Sean Gourley to quantify a startup’s “buzz”, as well as nice community features) to try and find out.  We all know the NVCA numbers that showed VC investment for Q1 of this year at a 12 year low, down 47% in dollar amounts from the previous quarter.  

Survey says: YouNoodle tracked 149 venture capital deals worth $1.55 billion among the 53,000 startups it follows (most of which are serious, some only serious in the entrepreneur’s head). Of this dollar amount, 26% was invested in biotech and medical devices; 16.5% in energy and cleantech; 14.3% in consumer Internet; 11.4% in hardware (including semiconductors, gadgets, and PC-related goods); 11.2% in finance; 6.2% in software; and the remaining 14% spread across four other categories such as mobile phones and education, each with less than 6%. The data also showed that most of the funding was later stage and Series B with 34% and 33% respectively, suggesting that VCs are taking a cautious approach at the moment by investing in more proven concepts.

These sector breakdowns by investment show the continued resiliency of biotech as it continues to hold up a bit better than other areas. The article points out that it’s taken 10 years for increased U.S. government grants to the sciences to start to bear commrecially viable fruit. Expect a dose of the same with world government’s increase in cleantech funding.  

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NVCA’s 4-Pillar Plan to Restore Liquidity in the U.S. Venture Capital Industry

April 29, 2009

The NVCA has just released a four-pillared plan to help revive the venture-backed IPO market.  Their argument is that the cause of the current dearth in companies going public lies beyond the severe economic downturn, and that certain systematic issues (such as Sarbanes-Oxley, the Spitzer Decree, etc.) are playing a larger role in creating these doldrums.  In reality though, I think it’s a combination of the two. While yes, they’re right in pointing out regulatory problems, one can’t overlook the simple fact that a severe recession is bad for a company looking to IPO.  

The plan brings up some excellent points and I particularly liked their emphasis on the VC “ecosystem”. Many of the boutique’s present in the 1990’s have disappeared and the playing field of advisory services is more homogeneous than before. The under $50 million IPO has become a rarity (though I think this has just as much to do with some VCs trying to hold off for a bigger payday as it does with large I-Banks and a lack of small-cap sellside analysts), and I was surprised that law firms weren’t touched on. Of all the advisory costs for small companies, legal fees are the ones that have risen the most over the past ten years.  I also think that the new private market platforms (such as InsideVenture, SecondMarket, etc.) will be an interesting space to watch develop over the next few years.

Anyway, here’s the presentation.

And the press release:

NVCA President Mark Heesen In Pre-Annual Meeting Talk

April 28, 2009

NVCA president Mark Heesen talking about concerns of the Venture Capital community before the association’s annual meeting. I think by now most people familiar with VC know the woes the business is having at the moment (only seven venture-backed IPOs in the last five quarters, a five-year low for fundraising, a twelve-year low for investing), but Mark also brings up regulatory issues and makes an excellent point at the end about the impact that the secondary markets are having on VC.

Mark Heesan of the NVCA on the Current Climate for Venture Capital

April 8, 2009

Bloomberg interview with Mark Heesan of the NVCA on the issues currently facing Venture Capital. Notes the biggest problems right now for the industry involve late-stage companies, and points out that times of crisis produce the best start-ups:

Dixon Doll on the State of Venture Capital

April 5, 2009

An interview from Bloomberg with Dixon Doll, co-founder and general partner of DCM and Chairman of the National Venture Capital Association, talking about the challenges that Venture Capital is facing:

Venture-Backed Exits Remain Elusive

April 1, 2009

The NVCA and Thomson Reuters have just released their data for venture-backed exits for Q1 2009 and the news is, as expected, bleak. There were 56 acquisitions of venture-backed start-ups, compared with 106 in Q1 of last year. Average dollar value for the acquisitions was $49.6 million, down from $113.6 million in the first quarter of last year and a steep fall from $140.3 million in the fourth quarter of 2008. 

What this meant for VCs was that their returns suffered. Only about a quarter of deals reported returning greater than 4x the venture investment, compared with 46% in the first quarter of last year. More than half of deals returned less than the amount invested, compared with 29% for the same period in ’08. All this, according to Dow Jones VentureSource, despite the fact that companies that were sold raised a median of $15.5 million in venture capital, 33% less than the amount raised by companies sold in the same period last year.

Almost half of the acquisitions of venture-backed start-ups were software or services companies, though the largest acquisitions were two medical equipment companies, both bought by Medtronic. CoreValve sold for $700 million and Ablation Frontiers sold for $225 million. Overall, VCs generated only $3.2 billion in liquidity in Q1, the lowest quarterly total since 2003 and down 65% from the $9.1 billion generated in the first quarter of 2008. Also worth mentioning is that for the second consecutive quarter there were no venture-backed IPOs. The back-to-back quarterly blackout is a first-time occurance since the NVCA has been keeping track of such things.

All that being said though, people seem to be focusing on the lack of firms being bought and not on the lack of companies looking to sell.  The overall M&A market is depressed, and more importantly, why would any VC want to sell in today’s conditions? Only if a VC is in desperate need for an exit would he/she consider getting out now. It has become a waiting game, and due to the fortunate position that Venture Capitalists are in (long-term fund life), they can be more patient with their portfolio companies than a manager of a publicly traded firm who has to answer to shareholders. Some of them just need to be reminded of that!

Q3 U.S. Venture Capital Investment Down 7%

October 20, 2008

According to a recent MoneyTree Report released from PwC and the National Venture Capital Association, venture capitalists put $7.7 billion into 1,033 deals in Q3 2008, a decrease of 7% from the quarter before.

Investment in biotech and medical device companies rose 10%, while funding for clean technology startups increased 14%. Venture investment for internet-based companies fell 36%, however some of this decline can be attributed to the fact that web companies today have become more capital efficient thus burning less upfront cash (also many “me too” copycat web ideas are no longer finding funding).