I was in the Bay Area yesterday, the big news was that Instagram was acquired by Facebook for $1B. The same day, I went to visit the Box.com office. While visiting the Box office, I couldn’t help but think how vastly different Box and Instagram are as companies. This post is not about if one startup is better than the other, but it does put the Instagram acquisition into perspective.
When I ask people about the NYC startup scene, most people can only rattle off a short list of startups, typically it’s Foursquare, Tumblr, Etsy, Gilt Groupe and Kickstarter. Those are all great companies but there are at least 60 additional tech companies in NYC that I think will have a substantial exit (in the next few years) and you should be aware of them.
There are ~600 NYC startups that have raised VC funding in last two years (per CBInsights). I wanted to keep the list closer to 50 but as you can see it is beyond 60 at this point. If there are any obvious breakout startups that I missed, please let me know.
NYC hasn’t had a large IPO ($1B+ valuation and/or raised $100M+ at IPO) in the last 10 years, yes, isn’t that shocking?! Assuming the stock market stays steady, I can see at least 10 of these startups mentioned above going IPO in the next few years.
Disclosure: This list of companies was put together based on insights gathered during conversations with VCs and other players who are an active part of the NYC startup scene. In addition, I used the following sites for research: LinkedIn, CBInsights (a NYC startup), Crunchbase, Compete, Quantcast and Made in NY.
The 2011 tech trends that stood out to me were startups addressing education, healthcare, ecommerce, distributed workforce and marketplaces. We saw vertically focused incubators pop up. The seed bubble and Series A crunch never materialized, despite the prognostication of VCs and bloggers. Startups led by Women founded grew significantly. We had a fair amount of VC backed IPOs (most haven’t performed well): Zynga, LinkedIn, Pandora, Groupon, Fusion-io, Cornerstone OnDemand, Zillow, Zipcar, Angie’s List, Jive, Demand Media.
Here is a list of newer trends I expect to see in 2012:
Despite the fact that there are a lot of incubators/accelerators and co-working facilities, we are going to see more of them come online. Although many pundits have been predicting a seed bubble for the past two years, I don’t see the level of funding for seed rounds diminishing in 2012. In addition, there is plenty of cash available for companies who have the product/traction and want to raise a Series A.
Here is a list of active investors who invest in Series A rounds of NYC (New York) based startups: If you are looking for Seed stage investors, see this post.
This firms are currently writing checks for companies who are raising Series A rounds that range from $3M to $10M.
NYC Based (meaning they have a full time investor(s) living in NYC & you don’t have to fly to another city for a partnership meeting(s)):
Non-NYC Based:
This is a great time to be a startup in the broader software sector. The image below represents some of the largest public tech companies and the dollars figures shown is their respective cash on hand. This cash will be primarily used to acquire private technology startups. In total, these 10 public tech companies have $240 BILLION in cash! Go get the money!
Here is a list of active investors in NYC (New York) based seed stage startups. If you are looking for active Series A investors, see this post.
The definition of active means that the investor has made at least three new seed stage investments in a NYC startup in the last 9 months. Some of the firms are new, so they haven’t made three investments yet but are planning on making investments. Seed stage investment means that these investors participate in deals that are typically less that $2M in size.
New York based seed investors:
Other investors active in New York seed deals (with location):
The blog post dejour for those in the startup community (including several VCs) is to discuss an upcoming bubble. These folks who are mentioning the bubble are those in the software sector, which includes consumer, enterprise and infrastructure. The cleantech, hardware, and life science sectors are not part of this conversation.
There have been two bubbles in past 10 years, both which I was a witness of. I’m not going to go into great length describing the two bubbles as there have been plenty of articles written on the topic, but here is a quick summary.
2000-2001 : many VC backed companies did not have the proper financial basis to go IPO, research Pets.com and Webvan for details. Essentially too much speculation. This bubble was mainly driven by the valley, VCs, startups and I-bankers. Rightly or wrongly, a lot of money was invested into enterprise/infrastructure for the potential Y2K bug. This downturn was exacerbated by 9/11. Over $100B was invested by VCs in 2000. NASDAQ dropped from ~5,000 in March 2000 to ~1,500 in September 2001.
2007-2008: a lot of VC backed companies were raising large Series A rounds of $6M, with not much to show in terms of customer/revenue traction. Follow on rounds were being done at inflated valuations, $50M+. The stock market tanked, primarily driven by inflated residential real estate prices, which was enabled by loose underwriting guidelines and poorly collateralized investment vehicles. The difference is that the 2007 market crash was not the fault of tech companies, as it was in 2000-2001. $32B was invested by VCs in 2007 (compare that to $100B in 2000). NASDAQ dropped from ~2,800 in October 2007 to ~1,300 in November 2008.
2011?: Folks are saying there will be crash, the problem is that they are not providing specific data points as to why they believe this is going to happen. What I hear from VCs is “it feels like a bubble is going to happen”. I also hear, “valuations are too high for Series A deals”. In 2010, we are on pace for $22B to be invested by VCs (compare that to $32B in 2007 and $100B in 2000).
We are not in a bubble, here is why:
A point of emphasis, some VCs are saying there is going to be Angel/MicroVC/Super Angel bubble. As I mentioned previously, if you add all these dollars, it is likely to be $600M, which is less than one VC fund. Lets do that math Floodgate ($75M), SV Angel ($20M), 500 Hats ($30M), OATV ($51M), Lowercase ($8.5M), K9 Ventures ($6M), SofttechVC ($12M), Felicis Ventures ($40M), Harrison Metal (?), Baseline (?),Y Combinator ($8.25M), TechStars ($2.5M), Founder Collective ($40M), IA Ventures ($25M), etc. The majority of the firms I mentioned have funds, of which many were raised in the past 12 months, so they still have another 12 to 24 months of runway, as most funds are deployed within three years. In addition to the $500M, lets add another $100M for individual angels, some of who are active on AngelList, so in total $500M + $100M = $600M in the seed/angel category. The seed rounds also include traditional VCs (funds larger that $100M) such as Sequoia, CRV, Trinity, Redpoint, Polaris, True, Greylock, First Round, Union Square, etc. It is difficult to know how much money from these funds are allocated for seed rounds, but it total, I would guess it it close to an additional $500M. In total we there is $1.1B available for seed rounds ($500M + $100M + $500M). In the big scheme of things these seed rounds make up a very small part of total VC dollars invested, which will likely be $22B this year.
There is certainly an argument to be made about the challenges of finding great engineering talent, but that will not result in a bubble occurring. Yes, there are a lot of incubators that are popping up, if those fail, that will not create bubble, they would be collateral damage.
There are a lot of companies that received seed funding this year who will not be successful, but that is not a definition of a bubble. These companies are raising much smaller rounds ($1M compared to $6M) and they are lot more capital efficient. Only a small percentage of startups become successful, this is true now and was true 10, 20 and 30 years ago. Yes, many of the seed funded startups will not raise a follow on round of financing. Seed rounds are meant to allow the startup to make a go of their business and if they fail to execute, they will not get additional funding, the next round of funding is never promised in this business. In addition, there is a great emphasis for startups to get to cash flow positive and that a revenue model must be proven.
In summary, 2011 will be a good year for startups who are raising seed rounds, there is sufficient cash available, so go get it!
Sites that provided some of the data I used for this post:
http://www.businessinsider.com/who-are-the-super-angels-a-comprehensive-guide-2010-10?slop=1
New York, concrete jungle where dreams are made of
There’s nothin’ you can’t do
Now you’re in New York
These streets will make you feel brand new
Big lights will inspire you
Let’s hear it for New York, New York, New York
Right now (and over the past 18 months) New York is a very exciting place to be if you are startup. The blog post by Fred Wilson provides some data which compares NYC activity vs the Bay Area. The underlying data in the post was provided by a great site called ChubbyBrain (aka CB Insight). The question a lot of people have is whether the level of startup activity is sustainable in NYC? My answer (& others in NYC area) is that, it is, which is why I’m excited to be moving there.
In the past nine years, I’ve worked closely with Bay Area startups and VCs. I’m moving to NYC to support the startup community and be part of expanding services infrastructure that is needed to have a fruitful tech community. My role will be the same as it was in the Bay Area; find great pre-VC backed startups to work with, assist these startups with their fundraising activities, host events that bring the startup community together and support organizations that are valuable to the startup ecosystem.
Although I’ve moving to NYC, I will be flying back to the Bay Area frequently to maintain the relationships I’ve developed there and feel the pulse of the Bay Area startup environment. Both NYC and the Bay Area are known for their amazing bridges, so I see myself strengthening the bridge between both communities.
Did you know that Silicon Valley Bank has had an office in NYC since 2001? The focus has primarily been on established startups that are VC backed and we currently work with most of the VC backed startups in NYC. Most of the Pre-VC backed startups are working with the traditional non-tech focused banks such as Chase and TD Bank, I will be changing that.
Every year, there are only a limited number of Venture Capital (VC) firms that do very well. In 2009, Sequoia Capital had a tremendous year in terms of total capital returned to their LPs (Limited Partners) aka Investors. They had five exits of significant value (one IPO, four acquisitions). Given that Sequoia Capital is an early stage VC firm, I am assuming they had at least 15% ownership in the following companies.
In total, $3.12B was generated via these five exits. Assuming Sequoia had 15% ownership that is $590M generated to their LPs. These returns will likely be attributed to two Sequoia funds (both are U.S. focused): $445M fund XII that was raised in 2006. and $395M fund XI that was raised in 2003, so $840M raised via both funds. So with five investments, Sequoia was able to return 70% of these two funds. In addition to these five investments, there are several other Sequoia portfolio companies that are likely to have significant exits including: CafePress, LinkedIn, Kayak, Meebo, Sugar, RockYou, Stardoll, etc. It is highly likely that Sequoia Capital will be able to provide a 2X return to their LPs for both funds. This is very noteworthy as many funds that were raised in 2003 and 2006 will likely return less than 2X of the funds raised to their LPs.
Other firms that had a good 2009 in terms of significant exits include: Accel Partners (SpringSource, Admob, Playfish) and Benchmark Capital (SpringSource, Pure Digital, Mint, FriendFeed). Do you agree with Sequoia Capital having the best year or is there another VC firm that you think had a better year?
All of the above mentioned information was sourced though various publicly accessable websites and articles including:
http://www.accessmylibrary.com/article-1G1-107042246/cautiously-optimistic-vc-fund.html
http://www.redherring.com/Home/14294
http://vator.tv/news/show/2009-12-22-sequoia-raising-1-billion-umbrella-fund
http://www.slideshare.net/eldon/sequoia-capital-on-startups-and-the-economic-downturn-presentation
Given that we are just about at year-end, I wanted to provide a recap of some of the most memorable moments that took place in the venture capital and technology ecosystem. Below is a list of the 10 most important events:
First VC backed technology IPO – OpenTable goes public at $20/share on May 21st http://www.techcrunch.com/2009/05/21/opentable-has-a-healthy-ipo-shares-shoot-up-40-percent-market-cap-hits-600-million/
First VC backed acquisition (above $500M) – Pure Digital acquired by Cisco for $590M – http://gigaom.com/2009/03/19/cisco-to-buy-pure-digital-for-590m/
First VC backed cleantech IPO – A123 goes public at $17/share on September 23rd http://seekingalpha.com/article/160794-a123-s-ipo-could-open-the-floodgates-for-greentech-sector
Khosla Ventures raises $1.1B – in 2009 most VC funds were shrinking in size, yet Khosla Ventures was able to raise $1.1B, this event was a sign that Limited Partners (L.P.s) we actively seeking investment opportunities in the VC sector – September 1st
http://www.nytimes.com/2009/09/01/business/01khosla.html
Tesla Motors receives $465M from the D.O.E – First technology company to receive a loan guaranty – June 23rd http://www.techcrunch.com/2009/06/23/the-government-comes-through-for-tesla-with-a-465-million-loan-for-its-electric-sedan/
Twitter raises a $100M VC round of financing – at a time when there are questions about the consumer internet sector, this funding provided some positive support that $ can be made in the sector – September 25th
http://gigaom.com/2009/09/26/why-investing-100m-in-twitter-isnt-crazy/
NASDAQ closes above 2,000 – August 3rd- the previous time NASDAQ was above 2,000 was September 30, 2008
http://www.marketwatch.com/story/tech-rally-pushes-nasdaq-to-close-above-2000-2009-08-03
Dow Jones Industrial Average closes above 10,000 – October 14th – the previous time the Dow was above 10,000 was October 2, 2008
http://www.nytimes.com/2009/10/15/business/15markets.html
Apple App Store gets more that 100,000 applications published – November 4th – as you may recall the App Store launched on July 10, 2008 and the creation of the iPhone and App Store has created opportunities for both VCs and Startups to make $$
http://www.apple.com/pr/library/2009/11/04appstore.html
Facebook Connect is widely adopted by 60M users and 80K sites – the utilization of Facebook Connect has allowed startup companies a way to reduce the time / effort for their users to sign up for a particular service
Other memorable moments which didn’t make my top 10:
Canopy Financial is accused of stealing money from investors – December 10th – this serves as a good reminder that investors need to spend more time on diligence and remember their fiduciary responsibilities
http://www.pehub.com/57905/canopy-financial-execs-accused-of-stealing-from-clients/
legislation that might change the way Carried Interest is taxed
Adoption of the Android Platform
http://www.pocketgamer.co.uk/r/Android/Google+Phone/feature.asp?c=17312
Did I miss any major moments or events? Let me know your thoughts.
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