The State of the Venture
Capital Markets
Mark Suster
VCJ Venture Alpha Conference – October 2011
@msuster
What is the State of the VC
Market?
What Comes After Social
Networking?
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
$5m
Open source
Developers
Cloud Start
Companies
$500k
$50k $5k
2000 2005 2009 2011
Amazon & Ycombinator Have Fueled the Market
• 90% reduction in cost
• Faster time-to-market
• Great ability to experiment
So Founders Much Younger, More Technical
Huge Explosion in Tech Startup Creation
Seed Deals
/ Incubation
While The Total Number of VCs Has Right-Sized
The Opportunities are Much Bigger
Millions Online
2,000 • Always On
• Higher Speed
• Payment Ready
• Socially Linked
100
2001 2011
Conditions Actually Bode Really Well for VCs
Seed Revenue
Deals + Potential
Active
VCs
So What Exactly Is Changing
in our Industry?
Some Goods,
Some Bads
Mentorship-Led Investing Has Captured
Enormous Talent Pool
Access to
Deals
Great New Focused & Disciplined VCs Created
Super Early Early or Classic A
Territory
Thrive
Topic Area
(i.e. big data)
Some Traditional VCs Now Doing Many Seed Deals
A, B C-E
Seed
Round Round
This is Driven by FOMO
(Fear of Missing Out)
High volume,
small deals
No oversight
Purely an “option”
Not smart strategy
for VC or founders
In H1 2011 80% of LP Money Went to Just 7 Firms.
The Billion Dollar Club.
VC Money Raised
($ billion)
$8.1
$6.3
7 Firms Total
Which Begs the Question of Whether It’s
Venture Capital or Growth Equity
A, B C-E
Seed
Round Round
Fund Size + FOMO Driving Separation from Price
& Underlying Value
Today’s
Market
$
Historic
Value
Time
People are Paying Growth Prices for Market Risk
Valuation
Market Risk Monetization /
Competition Risk
Growth / Scale
Risk
Product Risk
Time
Probably Less Traditional VCs Being Funded Lately.
Typical Fund Size
$25-75m $200-300m $500m-$1bn
A, B C-E
Seed
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
Internet?
Television.
Yes, really.
Americans watch 5.3 hours of TV / Day
Media Patterns
5.3 Hours
3 Hours
3 Billion
Video Views / Month
Minute
Costs /
YouTube
TV
YouTube is the New Comcast … And Notice the
Change in Branding
With YouTube Content Distribution is Much More
Predictable
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
($millions)
$3,500
$3,090
$3,000
$2,160
$2,500
$2,000
$1,500
$1,420
$1,017
$1,000
$500
$-
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