Mary Meeker (who now does growth stage deals for Kleiner Perkins) has released the 2014 edition of her annual Internet Trends report. Lots to read and digest here.
Author Archive for Udhay Shankar N
Andreessen Horowitz (or a16z, as it’s sometimes called) announced today that it has raised $1.5 billion for its Fund III. The venture capital firm has now raised a total of $2.7 billion since its founding in June 2009.
Co-founder and General Partner Ben Horowitz has a post on his blog with some detail on the thought process behind this step:
Since Marc and I founded Andreessen Horowitz three years ago, we have raised $2.7 billion. That statement begs a few questions. The two most obvious are:
- Why did such a new venture capital firm raise so much money?
- How did such a new venture capital firm raise so much money?
And for the answer to those questions, read the post above, since it isn’t very condensable into a soundbite.
Investment firm WestBridge Capital has raised Indiaâ€™s first so-called evergreen fund from global investors, or limited partners (LPs).
Unlike traditional funds, the $500 million (around Rs 2,500 crore) corpus that WestBridge has raised will not have an investment cycle. Instead, returns generated on investments will automatically be ploughed back into the investment pool, creating a perpetual flow of capital for investments. In other words, this evergreen fund will do away with the need of raising subsequent funds for investments.
This comes with a variable lock-in period:
WestBridgeâ€™s debut $500 million fund will have a life cycle of 20 years and could be extended by at least another 10 years or even more. There is a lock-in period for investors and the LPs will not be allowed to withdraw investments for a stipulated period. The WestBridge executives, however, declined to say how long the lock-in period is.
Very interesting news. In this climate of fear, uncertainty, and doubt, noted entrepreneur Marc Andreessen (who led the development of the first web browser and co-founded Netscape, among other things) and Ben Horowitz have raised 300 million dollars for early stage investments:
Sources said the fundâ€“which was nicknamed â€œProject Aâ€ but is actually called Andreessen Horowitzâ€“will be $300 million. It is $50 million over the $250 million he and Horowitz had planned.
Several major institutional investorsâ€“from universities, for exampleâ€“have invested large chunks of up to $20 million or more, while a spate of Silicon Valley luminaries has put in amounts of $1 million or less.
The quick completion of the fund raising, in the midst of a national econalypse, is a good sign perhaps for the forward-leaning culture of tech, which has seen some pullback by VCs over the last six months.
They certainly have the entrepreneurial chops, and are talking the talk about doing early stage deals and being patient:
His new effort will focus on early-stage investments, he said in the interview with Rose, noting that â€œour claim to fame is, weâ€™ve actually, you know, by entrepreneurs for entrepreneurs, weâ€™ve done it, weâ€™ve been on that side of the table for a long time; we know what itâ€™s like.â€
Andreessen said then that he and Horowitz had made 36 investments over the last three years of up to $200,000, but that his new firm will make up to $1 million bets on companies they decide to invest in.
Plus, he said then he would be patient: â€œLike with our new fund, if we fund a company today, weâ€™re thinking about a return in seven to 10 years, so we can go through three or four or even five years of economic downturn, as long as, at some point, we come out the other end.â€
Alok asked earlier about what change in behaviour we’re seeing among VCs. My own sense is that VCs in India are much more cautious than VCs in, say, the US. “No” is always a safe answer. Of course, the “venture” or “risk” part of “Venture Capital” is then drastically downplayed. Nowhere is this more true than in times like these. I have not attempted to gather much data on this impression yet specifically for the Indian market, but I would be surprised to be proved wrong.
Meanwhile, in the US, investments have fallen off a cliff. A post in TechCrunch details just how bad it has been so far this year:
And make no mistakeâ€”itâ€™s a steep drop. Venture funding fell by 50% nationally from the first quarter in 2008 to the first quarter of 2009, totaling to $3.9 billion, according to Dow Jones Venture Source. Thatâ€™s the lowest total since 1998. PricewaterhouseCoopers and the National Venture Capital Association had it falling farther to $3 billion.
Information technology investments fell 53% year-over-year to $1.7 billionâ€”the lowest since 1997, and the lowest volume of deals since 1995. And clean tech? Well so much for that being the future of the U.S. economy: It fell by 74% to a paltry $117 million.
The author also believes that this isn’t just about the recession, and that the VC industry was overdue for a shakeup.
Returns, on the other hand, did go down. And they never really got back up, given the amount invested. But the industry is graded on a ten-year time horizon so that didnâ€™t matter much. Once returns from 1999 and 2000 fall off that scale, it will. Returns will look at or below the S&P 500 for what is supposed to be a niche, high-risk/high-reward asset class. It takes forever to correct because fund cylces are so long, and the asset class is so illiquid. But it wonâ€™t go uncorrected, and the witching hour is getting close.
What does this have to do with money going out to startups? VCs are scared for the first time in a long time. Thereâ€™s no obvious high growth sector of the tech economy, and their investors are hit in nearly every nook and cranny of their portfolios. Theyâ€™re not sure how to do their jobs anymore when nothing can go public and acquisitions are few and far between.
I suspect, even though the VC industry is so young in India, that the reverberations will be felt here as well.
What is your feel? Any pointers to up to date data for India?
Even in this environment, there is lots of money around after all. It’s just that LPs are more cautious, seems to be the takeaway from this NYT blogpost:
Who says that money is tight for venture capitalists? Accel Partners, the Palo Alto, Calif., venture capital firm behind companies like Facebook, Glam Media and MetroPCS, announced Thursday that it had raised two new funds for a total of $1 billion.
Accel began fund-raising in mid-October, raising $1 billion in just two months, an impressive feat during a time when many of the investors in venture funds are unable to come up with the money they have already committed, nonetheless commit to new funds. Many of these limited partners have signaled to venture firms that they will not be ready to commit new money until 2010.
One of the new funds, the $480 million Accel Growth Fund, represesnts the first time the 25-year-old venture firm has raised a fund for late-stage companies. Its previous 10 funds have focused on investing in very young companies, and Accel is still investing its most recent $520 million fund in such start-ups.
Fascinating article in Wired about the resurgence of angel investing in the US, as well as a new software platform for angel investors that seems to be a category killer for now. Alok, would you know more about this?
Okay, so what? Well, the classic V.C.’s simply have too much money under management, and too expensive a talent pool, to waste time looking at investing anything less than $10 million in a project. Meantime, no entrepreneur wants to give up equity by taking in more money than he absolutely needs. So, when it only costs a few million to get a serious new company off the ground, how can the V.C.’s really play? They have to find places to make gigantic gambles, usually overpaying because the other big V.C.’s are also trying to invest in the few really big-dollar opportunities out there. It has become a system doomed to failure.
The flip side of the story is the rise of angel investor groups. These investment consortiums have always been ideally positioned to provide $500,000 to $5 million equity injections; but until recently, that wasn’t enough to get a serious effort off the ground. More fundamentally, however, they have historically not been terribly investor-friendly, largely because the individual members have other occupations.
The individual members didn’t work in the same place or even at the same times, so angels were terribly inefficient at evaluating transactions, sharing information, and negotiating and documenting deals.
Those days are over, thanks to software developed by David Rose, founder of the New York Angels (yes, I belong). Angelsoft is a wonderful collaboration platform that manages deal flow, helps match talent and expertise to projects, provides easy-to-use data rooms for potential investors, and generally drives the investment process. It combines project management and social networking in a way that, for the first time, makes the angel process efficient for both the company seeking capital and the potential investors.
The big news now is that, in a period of just a couple of years, over 400 angel groups around the globe have standardized on the platform. That means, of course, that they will also be able to share deals between themselves, vastly expanding the capital and expertise available for any given project.
A piece, via WSJ, provides some sobering stats:
There were 844 venture firms investing in U.S. companies last year, 40 fewer than in 2006, according to the latest data from VentureSource, a research unit of VentureWire publisher Dow Jones. That is down 30% from the bubble year of 2000, when there were nearly 1,200 active investors.
The total includes a substantial number of firmsâ€“224, or 27% of the totalâ€“who didnâ€™t back any new companies last year, an indication that the ranks of active investors will continue to thin.
The post goes on to give some more data about the US-based National Venture Capital Association’s members:
Heesen said he foresees a 15% decline in the next two years in the total number of venture firms investing in the U.S., many of them too small to meet the NVCAâ€™s membership threshold of $5 million under management. The NVCA has about 470 member firms representing 90% of the venture capital under management in the U.S.,
Many of the active investors in 2007 did only a few deals. Less than halfâ€“45%â€“completed four or more investments. And 29% made just one investment.
What does the community think? Is there a sense of slowdown here in India as well?
Akamai has published the first in a series of quarterly looks at the state of the internet (warning, requires registration), which they would be in a unique position to report on. From the summary:
Starting with the January to March (1st quarter) 2008 time period, Akamai will be publishing a quarterly â€œState of the Internetâ€ report. This report will include data gathered across Akamaiâ€™s global server network about attack traffic and broadband adoption, as well as trends seen in this data over time. It will also aggregate publicly available news and information about notable events seen throughout the quarter, including Denial of Service attacks, Web site hacks, and network events.
Here is a local copy of the report, for those who don’t want to provide an email address.
ET has a piece on PE investments slowing down and deals taking more time to close.
The current global meltdown propelled by subprime concerns has left its mark on the Indian market too, which is also evident in the number of private equity deals slowing down.
Industry experts say unlike in the past when term sheets were signed in six-seven days, the duration has now increased to a month. Fund managers are taking a longer time to make up their minds on investments. They are also agonizing over what valuations ought to be. Some are even backing out of deals.
This bit, about players backing out after the termsheet is signed, is especially interesting. Can readers comment if there are more examples in the recent past?
For instance, Indivision, a part of the Future Group backed out of an impending deal with DishTV after signing the term sheet. Sources said, this was because valuations were driven down. Then, sources added, there is the case of General Atlantic Partners backing out of Essar Power, once again, after signing the term sheet.