Q2 Statistics on Private VC-backed Mid-Cap Companies (“Unicorns”)

In the first half of 2019, 58 new private VC backed companies with a valuation of $1 billion or more have been generated bringing the year to the same full run rate as 2018 in which 108 generate new private VC-Backed Mid-Cap companies. It remains to be seen in the second half of 2019 will show a similar uptake as the second half of 2018.

The average time to Mid-Cap status remained in the first half of 2019 with 6.7 years within the standard deviation of the 5 years average of 6.6. Consequently, most Mid-Cap companies have been founded during the 2011-2013 period with a few companies achieving this milestone rapidly within 2-3 years of funding.

The Birth of an Asset Class

Amid all the hand wringing about a tech bubble, a new reality is hiding in plain sight: Late-stage, venture-backed companies have become their own asset class.

This new asset class – Private Tech Growth, as we refer to it – is comprised of high-growth private technology companies. These firms have completely transformed the venture ecosystem that has evolved over the past 40 years. They have shifted the center of gravity to those companies with $1 billion or more in combined market capitalization.

read more on PEHub: https://www.pehub.com/vc-journal/the-birth-of-an-asset-class/

 

A Goldilocks Market for Unicorns?

There’s been much hand-wringing about whether the venture capital community is producing an unusually high number of unicorns and is creating a bubble, but is the worry justified?

The answer is “no” if you compare the number of successful start-ups being minted by the venture capital community today to the historical average. That’s one of a handful of key findings from SharesPost’s newest white paper about the innovation economy and unicorns.

The full blog is published in VC Experts.

CCTV expert interview on Alibaba’s IPO

I was very happy to participate in yet another interview, this time on CCTV World Insight last Sunday after Alibaba went IPO. Check out and enjoy the recording (best fast forward to minute 41).

Screen Shot 2014-09-23 at 11.32.44 AM

Alibaba IPO priced – BNN interview with Sven Weber

Just shortly before Alibaba priced its IPO today BNN interviewed me on the company. Enjoy watching the recording.
In summary: opportunities for Alibaba are ownership structure and market, potential concerns are ownership structure and market – and of course: can the public market swallow a mega IPO like this?

VCs continue to face challenges on timing of distributions

The most recent PitchBook PE&VC Benchmark Report is an interesting read but one chart really shows one of the fundamental challenges VCs and their LPs face: the time it takes until you see repayment of your principal.

VC DPI Data

As the chart shows none of the vintages of 2001-2006 have returned  invested capital yet. You could argue that the 2001/2002 numbers have to be handicapped as post bubble vintages but the real bummer is that the 2003-2006 vintages follow the same DPI (distributions to invested capital)  curve as the 2001/02 vintages and  the 2004 vintage is even worse. Unfortunately the benchmark report does not separate DPI performance for different performance quartiles and shows just the overall average. Nevertheless the same chart for Private Equity shows much better DPI performance returning invested capital much faster which leads to the challenges VCs have with their LPs.

PE DPI

$6.1Bn invested in first 2 months – 25% of deals took 82% of capital

I was just running the numbers on Venture Capital investing during the first two months of 2013. Based on Crunchbase $6.1Bn got invested in 630 deal. 6 companies, representing the top 1% of the deals, captured $1.2Bn or 20% of the dollars invested.

Ja-Feb Stat

The top 25.2% of deals captured 82.2% of the total investment volume in that period, the top 7.6% captured 52.7%.  Mandelbrot would be proud of these numbers.

Here is a list of all deals with minimum $30m in funding (source Crunchbase):

Jan-Feb names large

The Lost Decade Can Be Declared Dead

In the last several days I spent some time analyzing the VC money flow. I didn’t want to get lost too much in the weeds so I just looked at the capital Limited Partners are committing to VCs and on the exit proceeds generated via M&As and IPOs. As written earlier, we saw in the last couple of years a positive net balance of Cash flowing into the VC sector in terms of LP commitments and Cash flowing out in terms of estimated VC exit proceeds. This time I took this approach a bit further and looked at the last 20 years and calculated a cumulated net balance since 1993.

And voila, after the Cumulated Net Balance went negative in late 2000 and never saw positive territory since, the picture changed dramatically in 2012. Just to be clear on the math, you have two main input parameters: the LP commitments into VC funds and the share of the VCs on the exit proceeds. The first is relatively easy to measure for the later you have to subtract proceeds to founders, option holders, Angels and Strategic Investors from the Exit data.

The very first comment that might come to mind looking at the chart is that obviously Facebook had a major impact, so I did a second calculation without the Facebook IPO. And surprise it still is positive! It was about 15 months ago when I wrote in a Silicon Valley Bank White Pape that the so called “lost decade” is not lost at all and that we should expect great returns of most of these vintage years with the exception of the 2000-2003 period.

Finally we reached the point VCs generating more cash-flow (with and with out Facebook) than it consumes – the “Lost Decade” can be declared dead!

What contributed to this? It is a combination of two factors: a) great entrepreneurship that lead to a significant inventory of great tech companies and b) discipline on the side of Limited Partners not to over-finance the sector (as painful as it might feel for many VCs). Just one note on the later: if LPs would have been a bit more disciplined in 2004-2007 the net balance could have easily been positive in that period.

holistic views on Venture Capital – analytics, investing & entrepreneurship

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