Tom Tunguz Talk at Wharton San Francisco
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Transcript of Tom Tunguz Talk at Wharton San Francisco
$3.5B under management
Offices in California and
China
Seed, Series A, B and Growth Investments
How the Fundraising Market is Evolving
VC Fundraising is Steady; 2014 Strong Start at $8B+ in Q1
Meanwhile, VC investments also steady at 10 year mean of $25B
And average investment size is stable to up
But Consumer Publics are down 25%
And the fall has been broad-based
Enterprise has been hit harder, falling 40%
Depressing Multiples from All Time Highs
• Public markets depressing multiples…
• But the venture market is increasingly competitive among venture firms who are raising a constant amount of dollars
• Net effect: relative stability in the fundraising market
Two Forces in Tension
Startups Are Markedly More Capital Efficient
IPO Cohort Average ROIC
Median ROIC Count
1998 0.82 0.82 2
2002 1.05 0.88 6
2006 1.78 1.15 13
2010 2.00 1.24 15
Startups today require half the capital to go public compared to 12 years ago
2010 Cohort Segment Average ROIC Median ROIC
ROIC <= 2 1.04 1.00
ROIC > 2 13.5 4.80
Certain segments are unbelievably capital efficient
• Recent IPOs are 2x more VC dollar efficient as their older brothers
• Outliers require negligible capital before IPO because of more efficient avenues of customer acquisition
• Net effect: startups need to raise less capital and will require a different pattern of financing
Startups are far more capital efficient than they used to be
Is Seed the New A?
Seed investment dollars has tripled in 4 years to $1.5B in 2013
And while angel rounds have increased some…
VCs involvement in rounds increases round size by 400%
Top quartile seeds, aka MegaSeeds are larger than most series As
MegaSeeds show no signs of slowing down. VCs buying early access to startups.
Consequently, the MegaSeed has replaced the traditional Series A
• VCs have 4x’ed the size of a traditional angel-only seed round
• VC dollars have created a new category of seed investment, the MegaSeed which has replaced the Series A
• Net effect: Series A investment sizes have increased because capital startups are further along than before
Competition in the VC market has pushed VCs to invest in seeds
Startup Fundraising Playbook
Larger seeds correlated to higher chances of raising a Series A
Larger seeds are better and equally as common as smaller seeds
Metric Angel Seeds VC Seeds
Series A Success Rate 33% 54%
Mean Seed Raised $M 1.3 1.6Median Seed Raised $M 1.2 1.5Mean Series A Raised $M 7.3 7.4Median Series A Raised $M 5.3 6.0
Raising seed from VCs increases seed round size but no impact on Series A
Metric Insider VC Leads A All VC Seeds
Mean Seed Raised $M 1.6 1.6Median Seed Raised $M 1.5 1.5Mean Series A Raised $M 7.2 7.4Median Series A Raised $M 5.8 6.0
Signaling risk is zero for companies who are able to raise Series A
Q4 is the least attractive time to raise a seed
• Raise more than $900k
• Easier to do with VC involvement. Typical round has 1.6 VCs
• Raise earlier in the year if you can
Best practices for raising a seed
Impact of Increasing Seed Investment in Follow On Rounds
More seed dollars = more seed companies = more series A competition
Series As rising. Crunch is in the Series B.
$5-$10M Series As have 2xed in 4 years
But Series Bs are flat across the board
Huge increase in the number of Mega Rounds
• Series A investment up 200%, responding to increase in company formation and seed companies
• Series B flat, creating a crunch for follow-ons
• Clear winners able to delay IPO/M&A for years because of IPO-sized rounds available in the private markets
• Net effect: Winners have access to tons of capital. Others may struggle with the Series B crunch.
Series A and B and later rounds are in flux
Appendix
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