Author Archives: Shai Goldman

3x DPI ?

The goal of most Venture Capital funds is to drive a minimum of 3x the capital invested to their Limited Partners.  The terminology that is used and most important to dig into is DPI (Distributed to Paid In).

From time to time, you will meet some audacious General Partners, who will claim they can drive 5x DPI.

Most VC funds have a 10 years life span, meaning the 3x DPI goal should be achieved within this time frame.

Lets look at the publicly available data on Pitchbook.  I pulled up all VC funds that were in the 2006 vintage (meaning the fund started investing that year, so we are at the 10 year mark now).  Pitchbook had return data on 27 funds.  I realize that Pitchbook doesn’t have access to return data of all 2006 vintage funds, but for this exercise and to make my point, 27 is a decent sample size, considering there are 322 funds that are a 2006 vintage per Pitchbook.

Of the 27 funds:

  • NONE have a 3X DPI
  • ONE fund has 2x+ DPI (1 / 27 = 3.7%).
  • TEN funds have a 1x+ DPI (10 / 27 = 37%)
  • 17 funds has less than a 1x DPI (17/27 = 63%)

This post isn’t meant to discourage VCs or LPs, but do want to highlight that this is a very hard business to be successful at.  With so many new VC firms being formed and many  new LPs rushing into the VC industry, it is important to reiterate the point.

I’m not sure on the history of why 3X became the default return target by LPs, as opposed to 2.5X or 2X (will do some research on this).  I realize that LPs are looking for a 20%+ IRR, which is how they get to 3x DPI goal, but it is fair to say that they have misplaced expectations.  VCs are in the business of investing in outliers and therefore LPs are looking for the same, but based on this data and other available data, if you are generating 2x+ DPI, you are an outlier.

Below is the dataset that I am referencing:

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We are hiring in NYC

Silicon Valley Bank is continuing to hire in NYC.  The office has rapidly grown with the startup community and we are excited about the opportunities ahead.

My group is hiring and am looking to spread the word to find a candidate for this unique position.

We are looking for a senior professional who will work closely with emerging managers (if you don’t know this term, probably not a great fit for the role).  

The role is focused on helping emerging managers with how they go to market, how they think through their fundraising process and connecting them to our network, which will improve their odds of success in this difficult industry, where 3x+ DPI is expected by LPs.  This role is not an investment position (in startups or funds) but one where you enable great investors and earn the role to be their trusted adviser.

This person HAS to be passionate about venture capital, founders, startups, limited partners and technology.  In addition to having the passion, this professional needs to have contacts in the industry, ideally with existing emerging managers and/or LPs who invest in their funds.

This role is based out of our NYC office at Bryant Park.

This professional has to have the flexibility to have detailed conversations with the four groups posted below.

Picture1

If this sounds like you, please email me at sgoldman at svb dot com

Thank You

Looking for Mentors in NYC

As you may know, I’m involved with a non-profit called BUILD.  I was a mentor when I used to live in the Bay Area and it was a very rewarding experience during my four years with them.  In addition, I joined the NYC board of BUILD in January, to help them launch here.

The mission of the organization: Through entrepreneurship-based, experiential learning, BUILD ignites the potential of youth in under-resourced communities and equips them for high school, college and career success.

Some of the students who are enrolled in BUILD have no aspirations to attend college, we want to change that.  If it wasn’t for the students’ involvement in BUILD, they might not have graduated from high school.  As a mentor, you have the ability to positively impact the path that these students are on.

BUILD was founded in 1999 and it is finally launching in NYC, having proved out their programming/model in the Bay Area, Boston and in D.C.

This upcoming October ’16, 500 local high school Freshman will be enrolling in the BUILD program.

We need 100 mentors to support these 500 students.  As of now, we have 50 mentors committed and need another 50.

There is a significant time commitment by the mentors:

  1. Program goes the entire school year, October ’16 to May ’17
  2. One hour per week (some weeks off due to holidays/vacation breaks)
  3. Sessions are in the afternoon at the students’ schools (locations are in Bronx, Manhattan, Brooklyn)

Who are out Mentors?  They are professionals who are dedicated to serving the students and have the flexibility in their work schedule to spend time with them once a week.  Mentors are providing guidance from a business/life perspective, you don’t need to have a technical or startup background to participate.

If you want to get more information about become a mentor, visit the mentor site or if you feel you are ready to apply to be a mentor, email Miranda Bellizia at mbellizia@build.org .

Thank you for reading this far.

 

Fastest Growing NYC Startups?*

Although I’m familiar with Mattermark, I only recently started using the service.   As I got to play around with the functionality, I gravitated towards the metrics around number of employees and employee growth rate.

Given that startup revenue figures aren’t provided on any public databases that I’ve seen so far, the closest (but imperfect) way to measure the growth of a startup is by employee growth rate.  If a startup is doing well, generally speaking, they are hiring.   This is a broad statement but true in most situations. That being said, hiring a lot of people quickly, certainly doesn’t equal success and in some instances have actually driven companies out of business, due to spending too much money, but that is an entire blog post in itself.

I set out a few parameters in order to find the fastest growing midsize VC backed companies HQ’d in NYC, here was the search criteria:

  • 100+ employees
  • HQ’d in NYC
  • VC backed
  • Still private (haven’t exited)
  • 20%+ employee growth rate in the past six months
  • 2%+ employee month over month growth rate

The results (sorted by Employees Month over Month Growth):

fastest nyc startups

One ratio I thought was particularly interesting, was (Employee Count / Total Funding). If this ratio is high, you COULD derive a few things: 1) they are more capital efficient 2) likely to be generating significant revenue.  For example, look at Movable Ink, an enterprise software startup.  They have 139 employees and only raised $12.3M to date.   If you want to use this ratio, it would only be fair to compare apples (Enterprise SaaS) to apples (Enterprise SaaS), as opposed to apples (SaaS) to oranges (Hardware).

*Again, this is certainly an imperfect way to find the fastest growing startups or most capital efficient, but it can provide some insights on these two fronts.

 

VCs who lead seed deals in NYC startups

Sent out a few tweets last night:

While there is a lot of discussions (and some clarity) on how the opaque VC world operates, it is still hard to get data for Founders who are fundraising.   In particular, getting information on seed rounds is challenging as many rounds are not announced and the specific VCs who invested, aren’t always listed.  To make things even more murky, who actually led the round isn’t always disclosed.

While fundraising is supposed to be challenging for startups, we could make it slightly easier for Founders to identify who the active VCs are and more importantly, who are actually LEADING rounds.   Many of my discussion with seed stage Founders are about fundraising and there is a lot of confusion as to who leads rounds vs those who participate rounds, a very important distinction.  In order for a round to really come together, you need a VC who will lead the round, which typically means they are setting terms (“pricing”) and writing the largest check in the round.

The criteria I’ve set is as follows:

  1. NYC HQ’d startup
  2. VC has raised a new fund in the past 36 months
  3. VC has led (or co-led) two seed deals in the past 12 months in NYC (see point #1)
  4. Check size of lead VC is $500K+
  5. Round size is $750K to $3M (could be an equity or a convertible note instrument)

So with the parameters outlined above, I have gone out to several data sources to see what could be found, although it has not been fruitful, at least on the point of who lead the round and how much they invested.

Given that many of the VC rounds haven’t been announced, the data isn’t actually available yet, so I also solicited feedback from the community on which VC firms fit ALL of the parameters outlined above (in alphabetical order).

  • Accel Partners (SF)
  • Bloomberg Beta (NYC and SF)
  • BOLDstart Ventures (NYC)
  • Bowery Capital (NYC)
  • Canaan Partners (NYC and SF)
  • Collaborative Fund  (NYC)
  • Eniac Ventures (NYC and SF)
  • ff Venture Capital (NYC)
  • First Round Capital (NYC and SF)
  • Flybridge (NYC and Boston)
  • Genacast Ventures (NYC and Philadelphia)
  • Greycroft (NYC and LA)
  • Homebrew (SF)
  • IA Ventures (NYC)
  • KEC Ventures (NYC)
  • Lerer Hippeau Ventures (NYC)
  • Metamorphic Ventures (NYC)
  • NextView Ventures (NYC and Boston)
  • Primary Ventures (NYC)
  • Resolute Ventures (SF and Boston)
  • SBNY (NYC)
  • Scout Ventures (NYC)
  • True Ventures (SF)
  • Two Sigma Ventures (NYC)
  • Union Square Ventures (NYC)

I’m actually surprised the list is this long, thought it was much shorter when I sent out the original tweet.  That being said, my sense is that there is room for more players as some of these firms are focused on specific sectors, while other sectors aren’t covered as actively.  In addition, the market is growing and there is an increase in the amount of seed stage companies being formed.  Lastly, most of the firms listed above are leading on average two deals per year in NYC, so that means ~40 NYC based startups would have lead every year.  I would assume there are more than 40 high quality companies per year in NYC that should have a lead, so again, room for more players.

If you think I missed your firm on this list, please send me a note at sgoldman at svb and provide specific information on which deals you have led in the past 12 months, thank you.

This list was purposefully focused on seed deals.  I think pre-seed is a distinct category and deserves a separate post/list, might work on that, stay tuned.

I have received feedback from people on the parameters that I set out.  They were done thoughtfully based on discussions with stakeholders in the community.  Feel free to write your own post based on other parameters if you disagree with mine.

Series A firms in NYC

Recently, I had a conversation with a NYC based seed stage VC, who was lamenting that there aren’t enough NYC HQ’d VC firms who are leading Series A rounds for local startups.

Naturally, I asked the twitterverse a question on this topic, this was the response:

Series A firms

As you may know, the twitterverse can be wrong sometimes, so lets find some data. We did a query on Pitchbook with the following criteria:

  • NYC HQ’d firms
  • $100M+ fund that was raised in the past 3.5 years (typical deployment time frame)
  • Led investments in NYC HQ’d startups at Series A stage ($4M+ size rounds)
  • Excluded life science sector

The results provided us a total of 14 firms*:

  1. Bain Capital Ventures*
  2. Bessemer Venture Partners*
  3. Canaan Partners*
  4. Elephant Partners*
  5. FirstMark Capital
  6. General Catalyst*
  7. Greycroft Partners
  8. IA Ventures
  9. Lux Capital*
  10. RRE Ventures
  11. Thrive Capital
  12. Tribeca Ventures Partners
  13. Union Square Ventures
  14. Venrock Capital*

 

If you look at the number of Bay Area HQ’d VC firms, who are actively leading Series A investments in NYC HQ’d startups, that number is 20.

Ideally, you would have had more local Series A investors than non-local investors, so there seems to be room for a new Series A focused firm to set up shop in NYC.

*These firms have several offices across the US but have at least one investing Partner based in NYC.  Notably, only half of the firms listed have the entire partnership based in NYC.

Thanks to our summer Intern, Lorel Sim, for pulling up the data.

P.S. – if you believe your firm should be part of the fourteen firms listed, please provide data to support the assertion, email me at sgoldman @ svb.com

#BlackLivesMatter

I’ve been following (& supporting) the #BlackLivesMatter (or BLM) movement for some time.

The data around the number of civilians who are killed by police is very clear and is alarming.  The data around the disproportionate number of black people who are killed by police is very clear and is alarming (see chart below).  The topic shouldn’t be controversial or divisive, they are facts and we need to be in action if we want to see the numbers decline.

This post includes action items for people who are conscious of the issue of black people being killed by cops at disproportionate rate (see below) and you haven’t done anything about it but are thinking about getting involved.

  1. If you are on social media (Facebook and/or Twitter), share articles on what is occurring.  Many people are silent on this topic.  While this seems like a trivial thing, sharing news has a viral aspect to it and the more people read about what is happening, the larger the odds of someone new becoming conscious of this issue as well.
  2.  Donate money.  There is typically a crowd funding site running a campaign to raise money for the families of those who are killed by police.  Even $5 can go along way, when aggregated among thousands of other donors, it becomes a meaningful amount for the families that are impacted.
  3.  Attend a BLM rally that is happening in your city.  These rallies are typically spontaneous, the way I find about them is typically via twitter.   If you are on twitter, you need to follow some other conscious individuals in your community, the best way to do that is do an advance search on twitter, filtering by location and the #BlackLivesMatter hashtag.  I’ve participated in several rallies in NYC, they are peaceful and are welcoming of anyone who wants to participate.
  4. Get familiar with Campaign Zero .
  5. Vote for politicians who are also conscious of this issue and will implement some of the recommendations outlined by Campaign Zero.

If there are other action items that I should add, please let me know, as I’m still looking to do more on my end.

See this chart, I hope you are aware of it, if not, I hope it makes an impact on you.

police_shooting_by_race.0.png

 

 

 

2016 Market Cooling

As you may have heard, the venture market has cooled in 2016, in terms of dollars invested and number of investments (deals) that are being done by venture capitalists (VCs).

There are a number of reasons for why this has happened.  The main driver has been the macro environment- forces that VCs can’t control.  It is a combination of a slowdown in China, challenges with several European countries, Brazil, ISIS, volatility of oil prices, upcoming US election, etc.  This in turn has created “bears” in the public markets, which has resulted in almost no VC backed IPOs and a correction in the SaaS sector as a result of the significant LinkedIn ($LNKD) price drop in February 4, 2016.   The chain reaction of all of this has led to VCs becoming more cautious and spending additional time with their existing portfolio companies.

The data below was pulled via CBInsights.  We analyzed deals/dollars in the US for 2016.

The most significant point is the drop of deals in Q2 ’16 vs Q2 ’15, a whopping 28% delta. We wanted to be predictive on what the 2nd half of this year would look like and it is a bit bearish.  The figures in green are just guesses, so could be totally wrong here but wanted to be on the record on what I think will happen.  The reasons on why the 2nd half may turn out to have a great delta between 2015 vs 2016 is that the markets are still facing significant macro issues, with the newest being #brexit, which has created additional uncertainty that will likely trickle down to the venture ecosystem.

There is good and bad news on the prediction.  When you put the numbers of both 2015 and 2016 into context, they are really high compared to previous years, so a lot of deals and dollars are still being deployed, which is the good news.  The bad news from an entrepreneur’s perspective, is that raising money from VCs has gotten a lot more difficult.

Now, lets focus our attention on the dollars deployed by VCs, see second image.  Similar to deals, the numbers are down, although not as pronounced.  What we are seeing is that round sizes have gotten slightly larger on average, which can be mean a few things.  One it could mean that VCs are putting more money into their better companies (i.e. flight to quality) and/or the runways are being extended as the forecast of macro environment is uncertain.

Similar to the prediction of deals for the rest of the year, the numbers will likely be down, although not as significant.

Although the outlook is bearish, the reduced numbers in 2016 (vs 2015) is positive for the venture environment, as the market was over-heated and the correction was needed.

dealscapital invested

Thanks to our summer intern, Lorel Sim, for pulling this data.

Q3 and Q4 2016 data are only predictions (numbers in green).

Data was only for US based private tech (all sectors) companies.

 

Most Active NY VCs

2016 has been a much slower years in terms of VC funding, when compared to 2015 (blog post coming).

I was interested to see which NY VCs are the most active in terms of investing in NY startups.

I did a query on CB Insights.

The results:

Top 5:  Bessemer, Greycroft, RRE, Lerer Hippeau and ffvc

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Top Startups in SF ?

As a follow up to my post about leveraging Glassdoor reviews to help determine the best startups in NYC, I was interested to see which startups had the highest reviews in San Francisco / Bay Area, in order*:

San Francisco, CA Companies - Glassdoor.clipular (4)San Francisco, CA Companies - Glassdoor.clipular (3)San Francisco, CA Companies - Glassdoor.clipular (2)San Francisco, CA Companies - Glassdoor.clipular (1)San Francisco, CA Companies - Glassdoor.clipular

*similar to the NYC post, the startups had to have at least 25 reviews and be HQ’d in SF.