The Venture Capital Market

There's a wonderful blog conversation ongoing between Paul Kedrosky and Fred Wilson on the optimal number of venture capital firms. To summarize, both advocate for a reduction in amount of capital and number of VC firms participating in the market.

Check out Kedrosky's post from this week - Fred Wilson and the Venture Capital (Non-)Cartel and Wilson's - The Venture Diet is Working.

I look at it from a market standpoint, driven by supply and demand. But like a good economic analyst, I've got more than two hands...

1. Good firms will survive and poor ones will exit. The challenge though is the slow speed of entry and exit in the VC market. Firms can take years to raise capital from investors, then need time to evaluate eventual investments, then ride them through to exit. Unsuccessful firms that enter the market take years to display their incompetence, so the market is stuck in the intermediate term with an over supply of VC firms and capital. Overall, you'd think that's a good thing for entrepreneurs - more investment money chasing fewer projects. But, VCs are not a commodity product - each have their advantages and strengths that abet entrepreneurs in their drive to successful exit. This means that entrepreneurs need to examine their options more closely - more money and more favorable terms doesn't always mean the best deal.

2. Maybe the challenge is not an over-supply of VC firms, but a dearth of investment targets. Are we out of good ideas? I'd say no way this is the case. There are always plenty of good ideas in today's global marketplace, with that number rising exponentially as countries like India and China gain increased access to technology and build a economic infrastructure that supports the development of new technologies to replace the old.

3. Market inefficiency could be an explanation - there isn't enough communication between aspiring entrepreneurs and VCs. I don't think this is the case either - VCs get hundreds of business plans submitted every week and "investable"start-ups only going to develop in markets with access to communication nodes and infrastructure that provides clear awareness and access to the existing VC firms.

4. Or maybe it's that the venture capital model is no longer relevant for a majority of emerging companies. Back in December 2008, I wrote that venture capital is moving "up the ladder." As deal size requirements get bigger and bigger, that means that the exit opportunities must be bigger and bigger. There's limited room for the mega-exits, so that means that more and more start-ups are seeking smaller investment amounts funded by angel investors, leaving the formal venture capital firms with fewer investment opportunities. Bigger exit requirements also mean smaller rewards for company founders and early-stage team members that accept venture capital. That makes the whole idea of funding with VC less attractive. Altos Research is bootstrapped, profitable, and quickly growing (gasp!). Our company founders never wanted to use VC as a vehicle for precisely this reason (and others...).

Profile of Angel Investors

Received an emailed list of the :most cited articles from Institutional Investor Journals. One of them caught my eye - "A Profile of Angel Investors" - published in the Journal of Private Equity. Haven't downloaded or read the article yet, but passing along in case you should care to...

Acquisition Price - FriendFeed/Facebook

I wish I was always this good... I guessed somewhere around $50 mln in an earlier post today about Facebook's acquisition of FriendFeed.

Turns out I was pretty close according to this post in the WSJOnline late today.

So it didn't take linear algebra to make the guess, but what the heck...

Secondary Market for Private Equity

Interesting post from Joanna Glanser at PEHUB about the number of private equity partnership shares trading hands. From the brief article:

The forecast released this week by secondary market maker NYPPEX predicts that sales of limited partner stakes in private equity partnerships will soar by 68% to $27 billion in 2009.

This highlights the stratosphere of markets that can and should exist to enhance market efficiency - allows one owner take possession of an asset that another is no longer willing or able to hold. Fred Wilson touched on that during his panel discussion at a recent conference. Marketplaces such as SecondMarket should exist to provide an exchange mechanism.

Venture Capital Panel Discussion: Fred Wilson & Jordan Levy

This morning's sessions at the InmanNews Real Estate Connect Conference in New York City included a panel discussion with Fred Wilson of Union Square Ventures and Jordan Levy of Softbank. Some interesting insights and perspectives regarding the state of venture capital and the general economy.

From Fred Wilson (who also authors the A VC blog):

• Spoke the prospects of building additional business applications on the Twitter API - labeling Twitter more as a platform than a service.
• Said that given the economies of scale, a viable internet business can be built on $20 million of revenue instead of the traditional $50-100 million models.
• The issue with the smaller revenue scale is finding venture capitalists to invest in these enteprises since it presents an exit problem for VCs. Assuming a 25% profit margin, a $20 mln business yields $5 mln in profits. If a VC owns 50% of the venture, that equates to an annual dividend of $2.5 mln which doesn't mesh with the 10x IRR models on which VCs operate.
• As a result, he discussed SecondMarket as a potential market location to buy and sell private shares of these start-ups to enable better liquidity of these smaller internet companies even though the company was initially developed for bankrupcy and vendor claims.

From Jordan Levy:

• Read some well-known statistics about the number of IPOs in the market (8 total in 2008 and none in the second half of 2008)
• Said that the VC industry as a whole has returned 0.2% over the last seven year period.
  
• Relayed the regulatory burdens hindering the IPO market by using his own attempt at an IPO that cost $3.5 million and utimately led to the decision not to go public. This is a well-documented problem also described in Michael Malone's recent WSJ article.
• Said that there is still lots of venture and institutional money available for good ideas, but given the current economic state, competition for that money will continue increase.
• Felt that angel capital is less robust ("the angels are scared") which doesn't bode well for small scaling companies requiring start-up capital in the $50K - $3 mln range that falls below the VC channels.

Venture Capital Trends: By Stage, Round, & Industry

In March, I noted that venture capital is moving "up the ladder" - more money was flowing into latter stage investments, with only about 10% of VC deals going to start-up stage investment (as compared to 25% in 1995).

In August, I examined venture capital investments by financing round which revealed that Series E round financing is on the rise which augments this earlier observation. Extending the March data through the end of Q3 2008 shows no real change - venture capital continues to flow into later stage rounds.

(click on the chart to enlarge)

However, there is a case for the "stability" of the Early Stage round trends. In their Fall 2008 recent report - "The Entrepreneurs Report," Wilson, Sonsini, Goodrich, & Sonsati (WSGR) stated that "this stability is one of the key indicators of the continuing rate of innovation in the sector, and clearly a positive sign in the face of the ongoing economic turmoil impacting world markets." (More on this at the end of these trend charts.)

Extending this analysis with the latest data from PWCMoney Tree, I examined venture capital investments by industry since 1995 to see if there were any structural changes of the industries receiving funding. Here is a summary of the data. (Note: Percentages measured in terms of total dollars invested.)

1. Hardware/Telecommunications: This industry grouping shows a clear downward trend in hardware-related industries since 2001.

This isn't terribly surprising, as many of the operational functions are moving from heavy equipment to cloud computing solutions.

2. Biotech/Medical/Energy: This industry grouping shows a clear upward spike in Biotechnology early in the decade (though waning a bit lately), a lagged spike in Industrial/Energy (reflecting the demand influence of clean and renewable energy technology), and a consistent rise in Medical Devices (maybe because more people are getting older and we're generally less healthy?).

Again referring to the WSGR report - "Early-stage companies are particularly well positioned to successfully respond to the challenges posed by future climate legislation." Further, the National Venture Capital Association released the results of a recent survey conducted from November 24 - December 12, 2008 and includes the predictions of more than 400 venture capitalists from across the United States. In a summary of this survey prepared by VCExperts - "clean technology is viewed by the highest percentage of respondents as potentially growing in 2009 with 48 percent predicting increased investment and 20 percent predicting unchanged investment."

3. Software, Financial Services, and Media/Entertainment: I grouped these together because of the movement towards cloud computing and the ongoing convergence of media and software applications in places like Facebook. No major changes in this group which was a bit surprising. With the influx of angel capital in recent years and the lower start-up costs required for software-related companies, I expected venture capital investment dollars to have declined, which is indeed falling steadily in the Software industry.

Overall, the consensus for the 2009 venture capital industry isn't terribly positive. The aforementioned NVCA survey reveals that 92% of VCs expect a downturn in 2009. The Fall release of the University of San Francisco Venture Capital Confidence Index reflects these sentiments as well.

While a general economic slowdown is an easy scapegoat for the negative outlook, Michael Malone wrote an outstanding piece in the Wall Street Journal - "Washington is Killing Silicon Valley." Malone's opinion article clearly describes the elephant in the room when it comes to innovation and technology - heavy regulation places a long-term management cost when start-ups seek their IPOs. These projected costs outweigh the risk-adjusted benefits to new business ventures. Maybe there's a reason we're seeing the trends outlined above.

Perspectives: State of Venture Capital

This slideshare presentation developed by TheFunded.com audits the state of the venture capital capital. It's a nice synopsis of a huge challenge - getting money to innovators. Whether venture capital industry is the answer doesn't matter. What matters is that we continue to develop innovation as a pipeline to new technology leaps and healthier long term economic growth.

Judy Estrin tackled this concept during her recent presentation as part of Stanford's Entrepreneurial Thought Leader Lecture - "Is Innovation Withering on the Vine." Whether you agree with the politics of the podcast or not, the principle remains the same - the innovation pipeline is slowing.

This supports some of the thoughts presented in a previous article - "Venture Capital: Moving Up the Ladder" - posted back in August. This isn't surprising to most in the industry.

Revelation is not the issue, resolution is...

(And a "Thank you!" goes to Mike Simonsen for pointing out both the presentation on TheFunded.com and Judy's participation in the Stanford series. That's why he's the boss...)

Recent Commentary on Venture Capital Trends

From PWC's report "Exit slowdown and the new venture capital landscape":

"In the second quarter of 2008 there were zero VC-backed exits - on the heels of five in the previous quarter which raised a thin $283 million. In the first half of 2007, by comparison, 43 VC-backed IPOs collected $6.3 billion."

From the Q3, 2008 report of University of San Francisco Silicon Valley Venture Capitalist Confidence Index™:

The Silicon Valley Venture Capitalist Confidence Index reading "fell from the previous quarter’s reading of 3.07 to a fourth consecutive new low since the Index was originated in Q1 2004 and indicates a continuing downtrend in venture capitalists’ confidence."

From Lawrence Aragon's article on PEWeek.com this week:

"The preliminary numbers indicate that VCs are hunkering down more quickly than they did after the dot-com crash. The data show that U.S.-based venture firms invested in just 250 companies last month, down from 565 companies in September and 518 companies in October 2007. You have to go all the way back to January 2004 (when they invested in 232 companies) to find a lower number. The only other October with fewer deals was in 1993."

Some positive does exist out there. The Q3 2008 MoneyTree Report published by PriceWaterhouseCooper indicates that overall venture capital activity is stable if measured in terms of dollars.

"Despite the turmoil in the global financial markets, US venture capital investing remained within historical norms in the third quarter of 2008. Venture capitalists invested $7.1 billion in 907 deals..."

2nd Annual MIT Elevator Pitch contest

Just picked up this link from Guy Kawasaki on Twitter. Good stuff if you have a few minutes...

MIT hosted their 2nd Annual Elevator Pitch contest on October 18. Here's the video of the event.

Venture Capital Trends, Q1 (2008)

Over the last couple of weeks, I've been intending to comment on the recent report released by VCExperts released in June regarding trends in venture funding in Q1, 2008. The graph below illustrates some of the key data from the report. The labels of A, B, etc. refer to the Series Round of Financing.

While recent trends in Series A-D financing have moved around a bit and returned to the same approximate levels from 2006, it's clear that the number of Series E+ fundings are rising over the past year. This may be manifesting a couple of market factors, including the current market constraint of two major VC-funded exit strategies - acquistions and IPOs.

Given the overall volatility of the stock market, perhaps potential suitors are sitting on the sidelines and taking an inward focus to developing operational strength and cash flow rather than seek growth through acquisition. Stock market volatility also appears to affect the number of IPOs filings, with only 13 IPOs filed in Q2, 2008 compared with 56 filed in Q2, 2007 (sourced from the Hoovers IPO Scorecard). Renaissance Capital's IPO Index is showing a -5.2% return over the past 1-year period, with year-to-date returns at -17.8%. It's just not a great time for IPO exits if you're a VC-funded company. (Of course, the DJIA is at about -10% YTD and the NASDAQ is about even so far YTD...)

In December 2007, a National Venture Capital Association (NVCA) press release reflected some bullish sentiments by venture capitalists, with "59 percent of the venture capitalists are predicting further IPO market recovery." I found this optimism particularly interesting given the counterview outlook illustrated by the USF Venture Capital Confidence Index. The most recent update released on July 9, indicates that VC confidence has fallen to an all-time low since establishing the index in 2004. Wish these VCs could make up their mind....

One factor in this trending may be the ongoing movement of venture capital. Data from PWCMoneyTree provides sufficient evidence that venture capital is falling into later stage investments over the long run, as discussed in an article back in March.

I'm guessing the truth is somewhere in between...

Reviewing LinkedIn's Valuation

After writing my weekend post about LinkedIn’s $1 bln valuation ("Locked in on Linked In"), I did a bit of reading about how some others viewed the matter. (I wanted to come to my own conclusion without being influenced too much by others who already wrote about the topic…)

Michael Arrington wrote a nice article back in June about social network valuations, using the “average Internet advertising spend per person in the country they live in.” Arrington mentions the same problem I alluded to in my article – not too many data points from which to base valuations in the social networking industry (Facebook’s at $15 billion, MySpace at $580 mln and Bebo at $850 mln by acquisition). He doesn’t come to any conclusions as far as viability of the current valuations, but the metrics and his responses to commentary make for an interesting read.

Many postings announcing the $53 mln Bain Capital investment mention rumors of how LinkedIn was striving for a $1 bln valuation, seemingly to justify its targeted user base of higher-than-average income user base that can be used to generate higher-than-average advertising revenue. Caroline McCarthy mentioned this back in May on CNET, as did Arrington in his May 5 posting.

Overall, the initial reaction out there is that the validity of the valuation remains to be seen, but the unique nature of LinkedIn’s user network appears to have some merit according to the first wave of observers. Of course, there were those with a hearty defense of the Facebook valuation when it hit $15 bln last year as Jonathan Richards wrote about in October.

Locking in on LinkedIn

I read about the recent $53 mln Bain Capital investment to LinkedIn and I was prepared to write an article again questioning the valuation of another social/business networking site. Like many, I'm not particularly enamoured with the current $15 billion valuation of Facebook, so my initial reaction to the $1.035 billion valuation of LinkedIn was - "here we go again..."

Because LinkedIn is a private company, their financials and revenue sources aren't available. I did some scouting on the site and they make money in a few ways:

1. Advertising via their Large Budget and LinkedIn Direct Ads to provide targeted advertising to its members.
2. Subscriptions to Premium Services that allow the user to directly contact people out of their network with "InMail" and send "Requests for Introduction" emails. These services range from $20-$200/month.
3. Perhaps some others such as data analytics based on membership statistics and activity (though this is only my conjecture...).

Johnathan Richards wrote an article following the June 2008 venture investment and estimates LinkIn revenues to be around $80-100 million, with "about a quarter" of the revenues coming from subscription services. At first, I was a bit surprised to read that subscription fees could be so high, until I considered the number of recruiters that have contacted me via LinkedIn, as well as my own activity. (I personally subscribed to their $20/month plan when searching for a job a while back, and was able to link up with a great recruiter at Russell Stephens as a direct result of an InMail.)

With the current $1 billion valuation based on revenues of $100 mln, that's 10x revenue valuation, without any knowledge of their profit margins. The News Corp acquisition of MySpace for $580 million back in 2005 supplies some relativity to the $1 bln valution. Though a social site, not a business site, MySpace does parallel LinkedIn in terms of its ability to focus on a large market segment, it's networking component, and the fact that the business world has placed a valuation on it. Since the acquisition, MySpace has reportedly been a boon to the New Corp's Fox Interactive Media Group. (According to the most recent 8K report from June 2008, News Corp reports that Fox Interactive Media grew revenues 57% and increased "operating profits five-fold on strength of advertising and search revenue growth at MySpace.") Two years after the aquisition, things seem to be looking rosy for New Corp according Murdoch in this Wired Magazine article.

Considering the virtual aspect to LinkedIn's product and the scalability of subscription services, I suspect that their profit margins are healthy and growing as LinkedIn acheives a greater lock-in effect with users - becoming the main destination site for business networking. The caveat to acheiving this lock-in effect will be the quality of service and networking effects. However, by providing the ability to remove connections and requiring a subscription for the ability to directly contacts individuals outside of one's network, LinkedIn drastically removes the diluation and spam factor to their networking functions. Additionally, LinkedIn boasts (as they should) that their audience has an average household income of $109,000, about 2.5x's the median US household income of $48,200 according to the 2007 US Census (though I'd like to know the median LinkedIn income to see how much top executives on LinkedIn skews this average figure).

Looking LinkedIn's development, they've taken a deliberate and apparently successful approach so far - develop a user base, find a way to quickly monetize activity with premium subscription services, and then analyze the user base to leverage it for targeted advertisers. From this perspective, LinkedIn is now completing the foundation of its business with the Series A, B, C financing of about $30 mln, while this most recent $53 mln should be intended to move the company into a mature state with specific long-term goals for continued rapid growth.

The most compelling part of LinkedIn's situation is its $1 bln valuation based on $100 mln in revenue. It's high, but justifiable given the apparent success of others in the networking space, and the unique niche of its business and professional membership base. Like everyone, I'm interested to see how quickly it can convert the valuation to practice, or to see if it can utilize its valuation to grow by:

1. Acquisition of higher-end job sites such as TheLadders.com or Vault.com
2. Targeted content partnerships such as their recent NY Times agreement
3. Integration of specific industry content and membership groups such as BAFT, VCExperts, or others to serve as a clearinghouse of industry information for its users.

So here I am at the article's end, completely reversing my initial reaction to the valuation - seems to be okay after all...

Venture Capital Trends - Q1, 2008

Found this article on VC Experts (a great source for articles and analysis on a myriad of venture capital topics) a couple weeks ago.

In short, Barry Kramer and Michael Patrick of Fenwich & West LLP analyze the venture funding terms for over 100 companies in the San Francisco Bay Area. For those number-crunchers, this is a great piece to read.

I'll spend some more time analyzing this weekend to infuse my own perspectives, but for now, here's a link to the article.

Getting Started with Bootstrapping Your Business

Traditionally, angel capital became known as “angel capital” because they were the first investors – the “pre-seed” funding, but with deals becoming more numerous and requiring more stringent expected ROI requirements, the entrepreneur in need of $50K or $100K in seed capital is left to bootstrap their business. If you are looking for that first installment of seed capital, here are some concrete ideas to consider.

1. Attend local start-up events. Get out and meet people. Yes, you’ve heard this time and again. Check you calendar. When was the last time you attended an industry event? If it’s been more than a month ago, that’s too long.
   
   Here in Silicon Valley, I’ve been a huge fan of the Silicon Valley Association of Start-up Entrepreneurs (SVASE). You probably won’t find funding at one their events, but you will surely uncover great ideas from their guests, panelists, and speakers.



2. Keep a regular blog. You don’t need to divulge company secrets, but keeping a regular blog provides you with some very tangible outcomes. First, a blog provides a written history of your idea’s development, so if you meet a potential investor or partner, you can show them your progress over time, not just where you are at the moment. It shows the outsider that you can keep a commitment to yourself and are able to communicate effectively with the outside world. Or perhaps a potential investor will find you when they are out searching for projects.
   
   Second, this helps you to see your own progress. As an entrepreneur, it’s easy to feel discouraged when you’re developing a new technology or innovation. You can’t always look back at the end of a weekend grinding away in your garage to see your progress. A blog enables you to see your accomplishments over time – everything from setting up an LLC to installing and understanding some new project management software to jotting down thoughts or ideas you’ve recounted from meetings and events you’ve attended.
   


3. Ask for advice and then listen. At a recent SVASE event, one of the panelists mentioned (to paraphrase) – “If you ask for money, you’ll get advice. If you ask for advice, you might get some money.” As an entrepreneur, you need to learn how to take constructive criticism and listen. Listening skills are the foundation of good sales skills, and enables you to improve your idea without taking the criticism personally. Remember Dale Carnegie’s book – “How to Win Friends and Influence People.” And if you haven’t read this book at least once in the last three years, then good back and read it again.



4. Ask for referrals. Memorize this line – “Thank you for your time and your advice. Do you know 2 or 3 other people that I can talk to for their advice as well?”



5. Carry a 5” x 3” Memo Book. These are about $1 at the local Walgreen’s and fit in your back pocket or jacket pocket. Great for writing down ideas that you get at the spur of the moment, or for jotting names and phone numbers of people you meet.



6. Stay positive. “It's supposed to be hard. If it wasn't hard, everyone would do it. The hard is what makes it great.” (Jimmy Dugan, played by Tom Hanks, in "A League of their Own" in response to Dottie (Geena Davis) saying she's quitting the team because "it just got too hard.")

The Venture Capital Confidence Index - A Leading Indicator

Mark Cannice, Chair of the University of San Francisco Entrepreneurship Program, provided some great insight about how venture capital and venture capital activites may foreshadow overall financial market activity.

In his video interview on The Wall Street Journal Online, Mark pointed out that venture capital operates at the "intersection of public and private finance," providing an interesting future perspective regarding the health of the financial markets. If VCs are seeing fewer exit opportunities via IPOs or acquisition, that may serve as a leading indicator regarding the overall financial market.

The complete video interview on MarketWatch is available for public viewing (no logins/subscriptions required).

Angel Capital Moving to Debt

I read an interesting article on VC Experts today regarding the movement of Angel Capital from the traditional equity stake in early stage firms to debt instruments. This seems to make sense for angel investors if the payback period for their initial investments is 5-7 years or longer. And considering that following the traditional model of creating a portfolio of 10+ investments in order to meet ROI expectations, angel investing can create some anxiety disorders over time.

Angel capital is becoming more and more vital to seed and early stage companies. A couple of months ago, I examined how Venture Capital is moving up the ladder from the seed and early stage investments into latter stage and near-exit companies. Seems no one wants to take the risk once borne in days past, and the impatience for payback and ROI plays havoc for venture capital firms and their investor return requirements.

With angel investors, a debt-to-equity arrangement make sense in the right scenarios. In a debt-to-equity arrangement, the investor might be able to eek out some return with less successful companies that didn't make the 10x or 100x returns hoped for, but still manage to yield positive cash flow and the ability to repay a loan instrument. These surviving firms might not explode into IPOs, but the debt-to-equity arrangements allows for recovery of the initial investment with an interest rate reflecting appropriate risk levels and in shorter time periods.

When I founded my own consulting firm, we were initially staked in a debt-to-equity arrangement. Our investor was an angel and a very close personal friend. Knowing that the company didn't have to be "all or nothing" for our investor to recoup his investment took some of the stress out of the agreement. This is a key part that's often overlooked when it comes to working with angel investors. While angel groups are becoming more formalized and organized, there is almost often a long-standing interpersonal relationship between investor and target. This can make for tough sledding if not handled properly.

I find the migration of venture capital and the continued establishment of angel capital to be a fascinating development in the start-up world. I invite your thoughts and views on this.

By the way, here's a link to the article of VC Experts.

University of San Francisco International Business Plan Competition

Quick update on a great event upcoming --

April 24 - 26 - Hotel Kabuki (San Francisco's Japan Town)

The University of San Francisco Contest will feature 20 graduate student entrepreneur teams from around the world (MIT, Hong Kong UST, Cambridge, USF, Stanford, etc.) pitching their new venture proposals to panels of venture capitalists, top executives, and venture attorneys.

The USF Contest has become internationally recognized as a serious venue for launching new technology companies and provides an exceptionally enjoyable and exciting learning experience.

Here's the schedule:

Trade Show Reception and Elevator Pitch Challenge
April 24 (Thursday) 6pm - 9:30pm
Hotel Kabuki
USF Faculty, Staff or Students, free. Alumni ($20 at the door), Other guests ($40 at the door)

Final Round
April 26 (Saturday) 9am - 1pm
Hotel Kabuki
USF Faculty, Staff or Students, free. Alumni ($10 at the door), Other guests ($20 at the door).

Go Entrepreneurial Dons!

The program is organized by Mark V. Cannice, Ph.D.Executive Director and Founder of the USF Entrepreneurship Program.

Tips for Entrepreneurs from Sequoia Capital

If you're an aspiring entrepreneur, the "Ideas" page on the Sequoia Capital website is an outstanding resource. It's rare (very rare) that a start-up can submit a business plan without any prior contacts and meetings with a venture capital firm and receive financing. But, this page is an outstanding primer of the themes and ideas that you'll need to tackle in order to build a successful company.

The first Internet IPO "Gold Rush" - in retrospect

I found an interesting spot on the PBS website - dot.con - that was aired and published back in 2002. Now that we're starting to get some perspective on the first Internet rush, reading these pieces in retrospect offers some valuable lessons going forward.

Venture Capital Investment Trends since 1995 (Deal Sizes)

Another snapshot of data provided by PWCMoneyTree.showing the size per venture capital per deal in companies of various stages since 1995.

The magnitude of the upward spike for Expansion and Late State companies is rather startling, but not surprising in retrospect, with the quick upslope from 1998 through 2000. Of course, this was the heydey of the first Internet boom, only to be followed by the impending crash in 2000-2001. One can only surmise that this free flow of capital into later stage companies is the 3rd, 4th, 5th round financings to get the original dotcoms to IPO.

To go from $7 mln/deal to nearly $25/mln deal provides some perspective on where the Internet IPOs took the imagination of venture capitalists and Wall Street alike, and where the imagination of venture capitalists and Wall Street took the Internet IPOs.