The State of Venture Capital March 2, 2002 John Gabbert Sr. Director, Worldwide Research VentureOne Corporation
Sep 14, 2014
The State of Venture
Capital
March 2, 2002
John GabbertSr. Director, Worldwide Research
VentureOne Corporation
Three Key Elements for
a Robust Venture
Industry Fundraising
Investment
Liquidity
Fundraising
$48.2
$90.1
$50.5
$29.8
$17.0$12.2
$7.6$6.8$6.2$2.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Venture Capital Fundraising Healthy in 2001
Commitments to Venture Capital Funds
Fu
nd
s R
ais
ed
($
B)
Source: VentureOne
$9.0$9.5
$11.7
$17.9
$25.6
$22.7
$25.2
$16.5
$22.7
$11.5
$8.7$7.6
$6.8
$0
$5
$10
$15
$20
$25
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
But Momentum is SlowingCommitments to Venture Capital Funds
Fu
nd
s R
ais
ed
($
B)
Source: VentureOne
1995 1996 1997 1998 1999 2000 2001
$7.6 $12.2$17.0
$29.8
$50.5
$90.1
$48.2
$6.8 $9.8 $12.8$17.6
$47.2
$91.6
$32.1
$0
$20
$40
$60
$80
$100
Investment Fundraising
Fundraising Far Outpaces Investment in 2001
Fundraising vs. Amount Invested
Am
ou
nt
Investe
d
($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
$6.8 $9.8 $12.8 $17.6
$47.2
$91.6
$32.1
2780
5779
4400
245921491888
1313
$0
$25
$50
$75
$100
1995 1996 1997 1998 1999 2000 2001
0
1,000
2,000
3,000
4,000
5,000
6,000
Amount Invested ($B) Number of Deals
2001: A Sharp Contrast to 2000’s Boom
Equity into Venture-Backed Companies
Am
ou
nt
Investe
d
($B
)N
um
ber o
f Deals
Source: VentureOne
$4.8$6.0
$10.3$11.4
$19.5
$27.0$24.2
$6.3$6.6
$22.3
$18.0
$10.6$8.6
610629736805
1155
1322
15911711
1451
11241070
755665
$0
$5
$10
$15
$20
$25
$30
$35
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
300
600
900
1,200
1,500
1,800
Amount Invested ($B) Number of Deals
Investment Levels Off at Year’s End Equity into Venture-Backed Companies
Am
ou
nt
Investe
d
($B
)
Nu
mb
er o
f Deals
Source: VentureOne
$4.6$5.0
$5.5 $5.8
$7.5
$10.0
$9.0
$10.0 $10.0
$8.0 $8.0
$6.5$7.0
$0
$2
$4
$6
$8
$10
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Median Round Size Gets a Boost in 4Q’01
Median Amount Invested Per Round
Med
ian
Am
ou
nt
Investe
d
($M
)
Source: VentureOne
Positively Affecting Later-Stage Rounds
Median Amount Invested by Round Class
$22
$11
$6$6
$15
$7$8
$4$5
$1.6$1 $0.5
$0
$5
$10
$15
$20
$25
4Q98 2Q99 4Q99 2Q00 4Q00 2Q01 4Q01
Later Round
Second Round
First Round
Seed Round
Med
ian
Am
ou
nt
Investe
d
($M
)
Source: VentureOne
Investment Shifts to Second & Later Rounds
Deal Flow by Round Class
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001
Later Round
Second Round
First Round
Seed Round
% o
f D
eals
Source: VentureOne
IT Dominates, Healthcare Recaptures
Investor InterestEquity Investment by Industry Sector
0%
20%
40%
60%
80%
100%
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Healthcare
Products &Services
InformationTechnology
% o
f In
vestm
en
t
Source: VentureOne
$11.9
$13.9
$15.0$15.0
$11.0
$6.0$6.0
$3.6$2.9
$7.2$5.6
$4.4 $3.9
584
767
578
903
757
883
421370
663
480404 383
352
$0
$4
$8
$12
$16
$20
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
200
400
600
800
1,000
Total Invested ($B) Total # of Deals
IT Investment Still Falling Equity Investment in Information Technology Companies
Am
ou
nt
Investe
d
($B
)N
um
ber o
f Deals
Source: VentureOne
Communications, Software Are Cornerstones of IT
IT Investment by Sector
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001
Software
Semiconductors
Information Services
Electronics
Communications% o
f In
tern
et
Investm
en
t
Source: VentureOne
Investment: Valuations
$11.1$9.5
$10.7$8.5$8.1
$13.0
$15.6
$21.0
$25.0
$16.7
$0
$5
$10
$15
$20
$25
$30
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2001 Valuations Fall Below 1999 Levels
Median Premoney Valuation by Year
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
$17 $18
$22 $22 $22
$27
$24
$27
$22
$18 $18
$14$17
$0
$5
$10
$15
$20
$25
$30
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Valuations Recover Somewhat in 4Q’01
Median Premoney Valuation
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Later-Round Valuations Boost Overall Numbers
Median Premoney Valuations by Round Class
$101
$43
$35$45
$16$18
$6$7
$14
$6$3 $3$0
$20
$40
$60
$80
$100
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Later Rounds
Second Round
First Round
Seed
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Healthcare Valuations Up Significantly
Median Premoney Valuations by Industry
$30
$23
$15
$23
$13
$31
$16$14
$27
$0
$10
$20
$30
4Q98 2Q99 4Q99 2Q00 4Q00 2Q01 4Q01
InformationTechnology
Healthcare
Products &Services
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Investment: Regions
Texas Edges Out Boston for #3 Spot2001 Regional Investment in the US
Bay Area 32%
All Other US27%
Southern California8%
Texas8%Boston
7%
Potomac5%
New York City4%
Midwest5%
Research Triangle1%
Washington State3%
Source: VentureOne
Bay Area Investment StabilizesInvestment in Bay Area Venture-Backed Companies
$4.4
$7.6
$9.2
$8.1$8.5
$6.3
$3.3$2.8
$2.1 $2.2$2.3
$3.7
$1.5
$0
$2
$4
$6
$8
$10
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Am
ou
nt
Investe
d
($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
$2.7$4.5$5.3$7.2$11.6
$20.3$23.7
$45.5
$15.7
$8.7$13.2
$5.4$4.2
69
81
939898
115108
122
8479
86
53
70
$0
$10
$20
$30
$40
$50
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
25
50
75
100
Amount Paid ($B) Number of Transactions
M&As Continue to SlipTransactions and Amount Paid in M&As
Am
ou
nt
Paid
($
B)
Source: VentureOne
Nu
mb
er o
f Tra
nsactio
ns
$0.8$0.2$0.3$0.5
$1.5
$6.7
$3.5
$7.4$7.4$5.3$5.3
$1.5$0.4
58
44
18
71
42
69
777575
21
7
$0
$2
$4
$6
$8
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
20
40
60
Amount Raised ($B) Venture-Backed IPOs
IPO Liquidity Up Marginally in 4Q01 … Deals and Amount Raised Through IPOs
Am
ou
nt
Rais
ed
($
B)V
en
ture
-Backed
IP
Os
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 2000.
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 1995.
IPO companies in 2001 were more mature, but the time from initial funding to M&A is still falling.
Conclusions & Implications 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 $
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
More Information
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