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.

$236 million? Bear Stearns, Valuations, and Train Wrecks

An astonishing train wreck. That’s all that comes to mind in reading about Bear Stearns’ collapse and J.P. Morgan’s purchase of the Wall Street mainstay since 1923.

According to the Wall Street Journal – “J.P. Morgan Rescues Bear Stearns.” "Rescues?" Seems more like Cousin Vinny bailing out the “two youts” somewhere in Alabama after being charged for murder…

Part of me feels like the $236 million price tag might still subject J.P. Morgan to the “winner’s curse,” but seeing that no other bidders were evident, I guess not...

To put the $236 million number into perspective, the latest Bear Stearns balance sheet is showing over $600 million in Plant, Property, and Equipment, so at least J.P. Morgan can have a sidewalk sale to liquidate the remaining office equipment and cover the legal fees associated with the acquisition. And the $236 million would have been pocket change for the LBO equity firm about a year ago.

Or if you started with $200,000 in 1923, earning the market return of 8.66% per year would have yielded you $232 million by now.

The latest venture capital investment-based valuation of Yelp is somewhere around $200 million. So Web 2.0 companies with revenues at $10 million a year are worth more than Bear Stearns in its current state?

When I introduce the concept of fundamental analysis to my finance students at the University of San Francisco, we do an exercise to illustrate the difference between “market value” and “intrinsic value” of a firm. Guess I have a new company to use for next semester’s lecture.

The Venture Capital Confidence Index

Just a quick mention of the Univeristy of San Francisco's "Venture Capital Confidence Index." This index is maintained by Mark Cannice, head of the Entrpreneurship program at the University of San Francisco.

The Index was recently mentioned in an article by Rebecca Beckman in The Wall Street Journal - "In Silicon Valley, Start-Ups Begin Hitting the Brakes."

Venture Capital - Moving up the Ladder

In an article earlier this month, I examined an interesting trend in venture capital based on data provided by PWCMoneyTree. In short, the data appears to indicate that venture capital is moving away from investments in the "Start-up/Seed stage" and more towards later stage companies - those companies in "Expansion" or "Later Stage."

A recent article by Joseph Bartlett on VC Experts seems to find similar observations, using Jensen's "Eclipse of the Public Corporation" for support to his argument. Bartlett refers to Rebecca Buckman's October 2007 article in The Wall Street Journal - "Venture Capital Goes Big" that discusses venture capital's increasing activity in the buyout arena of private equity.

While the private equity industry seemed to nicely partition itself in recent years - venture funds here, LBO/MBO firms there - a funny thing happened - the walls between participants in the private equity industry seem to have disintegrated to some degree. I referred to this in an article last summer based on Mark Boslet's article in the San Jose Mercury News.

The net result? Greater demand for LBO/MBO deals, causing valuations to rise and profit margins on these deals to fall, and in turn possibly contributing to private equity's troubles as the 2007 credit crunch hit the financial markets. Bartlett also discussess the increasing price of LBO activity due to this increased demand, more plainly referring to the "winner's curse" that haunts firms that overpay for acquisitions.

If this trends continues, the entrepreneur in her garage with next big thing will find that traditional venture funding may be more difficult to attain than ever, and start-up capital will likely to be better accessed through the increasing angel capital networks emerging throughout the country.

Launch: Silicon Valley 2008

Well, it's here (or at least it's on coming...) - Launch: Silicon Valley 2008. I attended last year's event and found the event to be a raw look at the start-up world.

At Launch: Silicon Valley, 30 presenting companies make a 10-minute onstage presentation, then receive candid feedback from a panel of venture capitalist and Silicon Valley professionals.

Companies that presented last year included several in the social media space, data security, and Guy Kawasaki's Truemors. Guy is well-known for his presenting ability - worth the price of admission on his own.

For entrepreneurs interesting in seeing companies that have gotten over some initial hurdles - developing a working organization, getting a product to market - but still a ways from getting to the finish line, this a great event. Check it out.