Sand Hill Road

VCs Work for School Teachers

The New York Times awoke to the surge in private market investing yesterday with an article that contributed relevant quotes about why many CEOs prefer to avoid an IPO.  They even found a tech CEO who admitted to being “terrified” of the public markets.  Ouch.  The NYT article can be found here

The article highlighted for me how often the public –  and even experienced journalists – forget the fundamental structure of our industry.  The NYT writes:

Screen Shot 2015-07-02 at 10.30.11 AM

The author, and much of the population, are forgetting the basics.

(more…)

Are the Unicorns Deceptive?

The private market is so healthy that even Silicon Valley journalists are publishing the “B” word (“Bubble”, not the one that rhymes with rich).  The robust private market has made the tech IPO an after thought; so much so that we are headed for the lowest issuance since 2009.  The chart below highlights how the Unicorn wave is so strong that 41 private companies raised illiquid private rounds ABOVE where Box priced its initial public offering in a liquid market at a very respectable SaaS multiple of about 7.5x run rate revenue.

Screen Shot 2015-06-15 at 4.34.13 PM

Are we in a bubble?  Journalists are hitting the Wayback Machine and dusting off old S-1s to find Year 2000 metrics we can compare to today’s market to answer the “Bubble / No Bubble” question.  In all the looking backward, they might have missed the reality of today’s market.

(more…)

Tech Market Update – Gartner CEO Summit

Include PE Buyers in your M&A Process Curious Incident of the Disappearing IPO

Our friends @Gartner_Inc invited me to speak yesterday at their Annual CEO Summit. I met some interesting people. Two of the speaking Analysts are leading projects around B2B buying processes and behaviors. Gartner has done some interesting analysis here, including creating a framework of Enterprise Buying Personalities. Worth checking out if you are a B2B marketer.

My segment was an update on the Tech Capital Markets generally, and the fundraising environment in particular. The slides from the discussion can be found here.

While reviewing our market data in preparation for the talk a couple of points jumped out at me:

  • The IPO market overall, but particularly in tech, is really off this year. Take a look at the data beginning on Page 12 of the deck. Dan Primack forecasted yesterday in his daily post that we are headed for the lowest number of VC-backed IPOs since the 2009 recession.
  • Public investors like Fidelity may not be crossing over into the private markets in search of outsized returns. They may be doing it as the lack of tech IPOs is offering them fewer alternatives to add new tech names to portfolios.
  • Take a look on Page 22 to see what investors in the latest round for @Snapchat could have bought instead….

Raising Growth Capital? Use a Banker.

Smart companies are adapting as the growth capital market has evolved

Disruptive tech companies are good at product and business model innovation, but they can be just as guilty as a Cleveland steel mill of “way we’ve always done it” operating behavior.  One behavior that puzzles me is the CEO or Board that has not adapted its funding plans to the shift in the private capital markets.  25 years ago venture capital and growth equity may have been the same market, best accessed with the same process, but today they are different markets that require different thinking and different processes.

(more…)

What Does HIMSS15 Tell Us About Venture Investment in Healthcare IT?

Over 20,000 people will gather next week in Chicago for this year’s HIMSS conference.  This nexus of the digital health world is a must-attend event for HCIT vendors.  The attendee list allows us to get a snapshot of how the venture industry is impacting healthcare technology.

VCs should be attracted to improving healthcare delivery.  Big returns come from solving big problems.  The cost, availability and quality of healthcare are big problems.  The Kaiser Foundation reports US healthcare costs have expanded from 7.2% of GDP in 1970 to 20% of GDP in 2015.  Venture returns are created when large existing systems undergo change.  US healthcare is a trillion dollar system with core drivers in place for change.  Many hospitals are operating with tech infrastructure that is a generation behind and implementation of the ACA is disrupting the system in ways both intentional and unexpected.

(more…)

Your VC’s Cap Table Math Could be Hurting You

This post includes some geeky accounting issues, but read it. It can change how much dilution you take in the next round.

Later-stage investors are delivering our companies attractive valuations. Just look at the latest Unicorn list.

However, many companies are not really getting the headline valuation in their term sheet. Ultimate ownership and dilution is driven by pre-money share price, not a headline valuation. When follow-on investors are calculating share price, many use an outdated method that is adding dilution to existing shareholders, most often hurting founders and employees.

(more…)

2015 Tech Growth Equity Outlook

What is in store after a transformational year in 2014?

Predictions for the tech growth equity market in 20152014 was a banner year for tech companies raising growth equity in the private market. Investors committed $74B to drive growth and provide liquidity. At least 21 new companies joined the “Unicorn” club with valuations in excess of $1,000,000,000.   Uber raised capital late in the year at a $41B value, a market cap that would rank it 32nd among all NASDAQ listed companies were Uber public. The private market universe expanded with mutual funds, hedge funds and corporate investors increasing their private portfolios. Marc Andreessen and Bill Gurley began to raise alarm bells about the market and company burn rates overheating.

So how does a company considering raising funds plan for 2015?  Read our full report here.

(more…)

Up Rounds & Simpler Terms – Q3 Tale of the Tape

Investors are Pricing Rounds Up, but Fearing the Bubble

Analytics are out on the private financing market during Q3.  We should all appreciate that Wilson Sonsini and Cooley each make the effort to aggregate and publish term sheet analytics.  The law firms can only report on transactions where they advise, but the collective data are by far the most detailed view into trends in term sheet structure.

The big takeaway for CEOs thinking of funding is that capital remains available – 80+% of all financing rounds were up rounds in Q3.  WSGR reports it is the highest level of up rounds since they began tracking data.  The WSGR graph below shows the recent quarterly trend:

Screen Shot 2014-11-07 at 3.07.40 PM

It is unlikely that 80+% of portfolio companies are making their budget numbers.   Therefore, the wealth of up rounds suggests investors are giving companies the benefit of the doubt and placing credence in future growth plans.

(more…)

What Market Slowdown?

Busy week in our market.  Private tech growth investors of all flavors – corporate, financial and crossover – deployed $2.5 billion since last Friday.

Week of Oct 20

Interesting to note how active the corporate investors were.  Strategic priorities such as mobile and virtual reality were backed by significant balance sheet commitments.  The snapshot of this past week also reinforces how broad and how global the market has become.

 

Private Tech Finance Ahead of 2013 & Bigger than IPO Market

Market healthy despite Q3 contraction

Much-discussed tech bubble fears should be abating as Q3 growth financing activity slowed relative to the first half of the year and the same period last year.  CB Insights has relevant data here (Subscribers Only).
Screen Shot 2014-10-15 at 9.10.02 AM

Despite the mild drop in Q3 total capital commitments, CEOs considering raising capital can rely on a private growth market that is still very healthy.   The chart above affirms that 2014 investments through September 30th have already exceeded all of 2013 in volume and capital.  If Q4 stays on the Q3 pace, the market will have delivered in excess of $32 Billion of growth equity to the tech economy.   The private market capital commitment will about equal to the IPO market with the inclusion of Alibaba’s $22Bn largest IPO in history.  Normalized to exclude Alibaba, the private growth market in tech will have invested a bit more than 3x the tech IPO market to grow companies in our sector.

Private investors, traditional, crossover and strategic, continue to deliver capital in round sizes competitive with the IPO market.  Halfway through October we have already seen rounds over $100M for Houzz and Docusign and rounds of $60M or more for MetricStream, TrueCaller, Solidfire, Beepi, Alteryx, Good Technology and Minerva Project.  Rumors are about that Google may be making a $500M minority corporate venture investment in Magic Leap, a company that has not actually announced a product.  Capital in the private markets remains very much available for compelling companies.