Future of VC Internet by marks

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									The State of the Venture
Capital Markets

Mark Suster

VCJ Venture Alpha Conference – October 2011

What is the State of the VC

 What Comes After Social
                           Accenture (software dev)

                           BuildOnline (’99)

                           Koral (’05)

                           VP Product Mgmt,
Both Sides of The Table     Salesforce.com

This Week in VC            Largest VC firm in
                            Southern California
      The Set Up

What is Driving Change?
It Is Dramatically Cheaper to Start a Company

              Open source

                            Cloud     Start

                            $50k     $5k
 2000        2005           2009    2011
Amazon & Ycombinator Have Fueled the Market

       • 90% reduction in cost
       • Faster time-to-market
       • Great ability to experiment
So Founders Much Younger, More Technical
Huge Explosion in Tech Startup Creation

                              Seed Deals
                              / Incubation
While The Total Number of VCs Has Right-Sized
   The Opportunities are Much Bigger

   Millions Online

                2,000   • Always On

                        • Higher Speed

                        • Payment Ready

                        • Socially Linked

2001             2011
Conditions Actually Bode Really Well for VCs

                            Seed         Revenue
                            Deals    +   Potential

So What Exactly Is Changing
     in our Industry?

       Some Goods,
        Some Bads
     Mentorship-Led Investing Has Captured
             Enormous Talent Pool

Access to
   Great New Focused & Disciplined VCs Created

                  Super Early   Early or Classic A


  Topic Area
(i.e. big data)
Some Traditional VCs Now Doing Many Seed Deals

                     A, B           C-E
                    Round          Round
This is Driven by FOMO
 (Fear of Missing Out)

                   High volume,
                    small deals

                   No oversight

                   Purely an “option”

                   Not smart strategy
                    for VC or founders
In H1 2011 80% of LP Money Went to Just 7 Firms.
             The Billion Dollar Club.
                  VC Money Raised
                     ($ billion)

              7 Firms        Total
Which Begs the Question of Whether It’s
   Venture Capital or Growth Equity

                 A, B            C-E
                Round           Round
Fund Size + FOMO Driving Separation from Price
              & Underlying Value


People are Paying Growth Prices for Market Risk

                            Market Risk                 Monetization /
                                                       Competition Risk

                                          Growth / Scale

             Product Risk

Probably Less Traditional VCs Being Funded Lately.

               Typical Fund Size

   $25-75m        $200-300m        $500m-$1bn

                       A, B            C-E
                      Round           Round
    Traditionally VCs Have Focused on Few
       Companies & Deep Commitments

1-2 deals per                    Many deals /
partner / year                      year
Two great firms have reinvented model by focusing
             on the “group collective”

    Winning        Ops Support        Follow On $$

• Founder        • CEO Summits      • Heavy focus on
  friendly                            “second round
                 • Founder Email      capital”
• High volume      Lists

                 • X-Company
                   Equity Sharing
Some of Best Returns Seem to Be Driven By
      “Right-Sized” Traditional VCs

            Public

            Accessible

            Though-Leaders
 Public Openness Helps With Every Major Stage
             of the VC Lifecycle

 Access to                Follow On
              Winning                      Exits
  Deals                       $$

Top end of   Founders      VCs work     Awareness
  funnel      want to     with others      with
   much      work with    they know,    buyers for
   wider       you           like &        your
                            respect      portfolio
    So What is the Next Big
Investment Opportunity on the


         Yes, really.
Americans watch 5.3 hours of TV / Day

               Media Patterns
                                5.3 Hours

                3 Hours

    < 1 Hour

    Reading      Online            TV
 You Tell Me
  What the
Future of the
 Internet Is?
But VCs Hate Investing in Content – Hits
           Driven Business?
It’s Not Just Dogs on Skateboards Anymore
        A Disruptive Breed of Digital Content Producer
                         Has Emerged

  Costs /


      UGC          YouTube                  Network TV
          These 4 LA Companies Alone Doing > 3 Billion
                      Video Views / Month
Costs /

YouTube is the New Comcast … And Notice the
             Change in Branding
With YouTube Content Distribution is Much More

     Producer         YouTube        Viewer

                 Subscribers

                 Email Lists

                 Facebook Connect
 Youth Demo Already 1/3rd of Time Online
            Watching Video

                             Streaming Video

Other Surfing
  And Revenue Becoming Substantive

          US Online Video Advertising Revenue





          2009        2010        2011E         2012E
How Mainstream? 86% of All Internet Watch
             Online Video
         Aug 11

42 billion   views

  185 million viewers
    228 videos / person
             17 hours
91% of Households Still Pay for TV (91%)
This Market Disruption
Will Be Enormous – And
   It’s Arriving Now

Thank you

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