A company called Preqin has some stats on the number of early stage venture funds out raising capital, available here. Basically, they are saying that 133 funds are out raising just over $10 billion, with about $2 billion of that already closed by 58 of those funds.
It looks like the asset class is doing ok, in that there is a positive trend in the amount of capital being raised by VCs. From the company’s site, “Preqin’s extensive fundraising data shows that between January and July 2012, 40 early stage venture capital funds have reached final close, raising $7.4bn. This demonstrates a continued upward trend for the fund type, following 69 funds holding a final close during 2011 having raised $8.4bn, and 71 funds closing during 2010 on an aggregate total of $6.0bn.”
I had read on peHub that fewer funds were getting funded recently (although a couple of big funds were keeping the total dollars raised at a decent level.) But I guess I need a subscription to give you a real link to that piece – lesson learned, I’ll have to make sure to aggressively blog about interesting peHUB stuff as it is made available! Here is all that I wrote about it before:
“US venture funds raise $5.9 billion in Q2 2012 – 12% more than Q1. 38 funds raised money. Two of those 38 funds were HALF of the total, so that’s some big funds plus a lot of little ones. But it’s also 22% fewer funds than Q1… so we are continuing to see the contraction of the US venture capital industry.”
So is the industry healthy or not?
I’d say probably not, with the number of new funds shrinking and the amount of $ per new fund really small, with a huge skew in dollars raised to big follow on funds by existing venture capital groups.
Gigaom has a new piece, “Who is right on internet valuations? Public markets or VCs?” which points to the drop in public share price of Groupon, Zynga and Facebook as examples of newish public internet companies who have had nasty drops in their share prices. The piece correctly notes that “they were overvalued as private companies and after going public they have been presented with a reality check… The latest to get that reality check in Zynga, which today saw its stock tank almost 40 percent to about 3 bucks a share in after-hours trading.”
While it’s clear these companies were all aggressively valued as private companies, I don’t agree with the idea that it’s either the VCs fault or the public markets fault.
Instead, I believe that a lot of the pumping up of these companies valuations happened in the private secondary markets. And most of those secondary markets investors weren’t traditional VCs; they were … well, I don’t have a clue who they were, maybe hedge funds? (Actually, Dan Primack at Fortune says “Around 50% of Facebook buyers through SecondMarket are described as “asset managers” or hedge fund managers. Individuals make up 14.8% of the pie, while family offices (11.8%) and mutual funds (7.5%) also are represented.”)
Traditional VCs weren’t adding to their ownership positions in those crazily valued private trades – in fact some early investors were liquidating some of their holdings in the private secondary markets.
Facebook’s private company valuations
According to Secondmarkets, Facebook’s private valuations were:
|07 26 2012||$59.0|
The data above is from Secondmarkets, with the exception of the July valuation which I just pulled off of Yahoo! Finance.
The Russian investor Digital Sky Technologies & Goldman Sachs invested around a $50 billion valuation in early 2011, and Elevation Partners invested at something in the high twenties billion in the middle of 2010. These are more growth or private equity style investments vs. traditional early stage VCs, so I don’t consider it fair to blame the venture capital industry for the high valuations of these companies and the subsequent public stock drops.
Furthermore, the company appreciated from $50 billion to $100 billion while private, but I’m pretty sure that had nothing to do with traditional VCs, unless they were selling their holdings at those values. And the fact that all of these companies are having their public stocks go down now is more due to the issues they are having beating the public markets growth projections more than anything else.
So, let’s not blame the VCs for the public company stock drops.
VC’s invested a lot more this past quarter than they have recently. Check out the Xconomy piece on Q2 2012 VC investments.
I’m quoted in a PC World piece about how apps will change the nature of desktop software. I had a long conversation with the author, Jared Newman, about how OfficeDrop’s apps, both our smartphone scanner apps and our mac desktop scanner app, ScanDrop, are dramatically changing how we distribute our SaaS product.
The article’s thesis is spot on:
Not surprisingly, many developers are enthusiastic about the easy distribution and streamlined billing that app stores provide, yet these stores also introduce challenges–some that are unique to desktops, and others that have plagued smartphones since the dawn of the iPhone App Store.
I spoke with Jared for a while about how we were wrong about how customers wanted to use our service. They actually want to download and install apps, not use the web. We were off by 100%.
The soon to be famous Healy Jones quote is:
Healy Jones, vice president of marketing for OfficeDrop, noticed this shift away from the Web immediately after his company released mobile and desktop apps for its document-scanning service.
OfficeDrop, which provides searchable cloud storage, says that it sees seven times more user engagement through its apps than it does through the Web browser, Jones notes. Since releasing its first apps in 2011, OfficeDrop’s user base has grown from 7000 users to 140,000 users.
“We had a thesis that people did not want to install software; that the cloud meant that people could use a browser to interact with software and would never have to install anything. We were completely wrong,” Jones says. “People love installing software.”
Obviously I’m really bullish on apps. That’s also why I’m very bullish on tablets (and part of the reason OfficeDrop recently released an Android tablet version of our app.) Apps are how people want to interact with software. I’m happy people like HTML 5, but if it isn’t installed it’s not gonna grow as well as an app.
Wow, I’ve been way too busy to post. It’s embarrassing. But here are a couple of good links on the early stage fund raising market I found via pehub:
- US venture funds raise $5.9 billion in Q2 2012 – 12% more than Q1. 38 funds raised money. Two of those 38 funds were HALF of the total, so that’s some big funds plus a lot of little ones. But it’s also 22% fewer funds than Q1… so we are continuing to see the contraction of the US venture capital industry. Read more here.
- SVB has a report on angel group’s investments; median pre-money valuation was $2.5 million. The report is here.