Venture Outlook 2015 Goldrush or Fool’s Gold?

Mark Suster - @msuster

There are 50x more Internet users today (33% of world population)

Sources: U.S. Bureau of the Census, World Bank. As of Q2 June 2012.2

World Internet users (M)

1995 2000 2005 2010 2012

2291.2132

2019.2929

1019.086

411.0758

44.3587

1

NOW1995

Online speeds are over 180x faster

Source: Akamai ‘s State of the Internet Q1 2014 3

56 Kbps modems

10.5 Mbps average U.S.

Internet connection

speed!

2

People are mobile: connected everywhere, all the time

Source: 2014 Statista forecasts4

• Personal • Location

aware

• At point of purchase

2014 US smartphone users

164m2014 US tablet users

119m

3

Everybody is socially connected driving viral growth at faster rates

5

Monthly activeusers255M

Monthly activeusers1.3B+

Global registered members300M+

Hours of video watched each month by 1B+ users6B+

4

We all have credit cards on file with a single click to purchase

Sources: eMarketer, WSJ6

Global ecommerce spend$1.5 trillion1 billion

Digital shoppers worldwide

The Apple app ecosystem alone estimated to be $35 billion in 2014 (from $0 in 2008)

5

Industry right sized to pre dot-com levels

Source: Prequin. Includes all LP investment into US VC funds with IT & Digital Media focus. Excludes funds with hardware & nanotech focus, non-$USD funds, funds with undisclosed amounts, & funds without first close

7

Commitments from LPs to U.S. Tech VC funds ($B)

1995 2000 2005 2010 2012

15.772

9.306

15.846

50.401

3.09

No. of funds raised by U.S. Tech VC firms

1995 2000 2005 2010 2012

65

50

74

163

33

6

Think about it …

8

50x users, 180x bandwidth, 6x time spent online

Mobile, social, credit-card ready

Global economic pressure

Companies that work are growing faster than in human history=

Market Capitalization at IPO ($B)

Cisco Amazon Microsoft LinkedIn Twitter FB Alibaba (est)

2525

$ 18

4.250.7780.4410.224

Private investors capture more value, encouraging greater pre-IPO funding.

Source: Quigley Report 2011, FLAG Capital9

Previous Tech Cycle New Tech Cycle

$125B+Current market cap:

$150B+ $340B+

Companies are raising larger amounts of private capital before going public

Source: Dow Jones Venture Source 2014 via EY10

Median amount raised prior to IPO ($M)

2008 2009 2010 2011 2012 2013

100.9

78.482.872.1

42.548.6

Public company startups are significantly more mature than their 1.0 counterparts.

Source: Age from NVCA 2014 Yearbook – Thomson Retuers, Revenue & Multiples from Pitchbook Tech Valuations Presentation (June 2014)

11

Years to IPO (from 1st financing)

IPO in '00 IPO in '13

7.4

3.1

Revenue ($M)

IPO in '00-01 IPO in '13-'14

101.6

34.8

Valuation/Revenue Multiple

IPO in '00-01 IPO in '13-'14

5.3

13.3

• Hedge funds• Mutual funds

So late-stage private financing now facing unprecedented competition

Source: CB Insights12

Traditional public investors

• Growth funds• Opportunity

funds

Traditional VC investors

Moving Later

Moving Earlier

• Google• Rakuten • Alibaba

Corporate VC Entrants

New

Thus valuations at later stage have gone up the fastest

Source: Source; Q2 2014 PitchBook US Venture Industry Data Sheet, * As of Q1 201413

$ 1

$ 10

$ 100

$ 1,000

5.8811.28

28.162.34

155

3.156.65

19.937.07

66.05

Seed Series A Series B Series C Series D+

24%

14%9%

14%17%

Median Pre-Money Valuation ($M)

2010 to 2014 CAGR

2014*

2010

But this is not 2000.

14

This is fueling some discussion of a bubble.

Both trends are real.

The startup value & growth unprecedented thus new entrants forward paying prices for late-stage deals.

So what will the future hold? What to expect as an angel, a founder, a VC?

15

Topic discussion:

1. Crowd-funding (Equity vs. Product Pre-Sale)

2. Angels

3. Venture Capital

4. Founders

Venture Outlook 2015

Mark Suster - @msuster