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

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.

 

Best Startups in NYC ?

There is always a debate as to which startups are the best ones in NYC.

Looking at Glassdoor can be one resource to utilize to make an argument as to which ones are the best.  How employees feel about a company, can be a good indicator as to how a company might perform.

I took at look at which NYC HQ’d VC backed startups had the highest rankings.  In order to be considered for this list, the startup had to have at least 25 reviews, which I feel is a good enough sample size.

So, here are the top 5:

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Market Cooling of 2016

VC rounds and dollars are down approximately 1/3 vs the same time frame as last year (2015).

I utilized CB Insights to pull some data.

I wanted to see what has happened the last few months, post the public market correction that took place in February 2016.

First thing I wanted to look at was all VC rounds in the US between March 15th and May 15th of this year.

The query provided: 523 rounds of equity financing, totaling $7.12B.

Now, I wanted to compare to same time frame of last year.

The query provided: 778 rounds of equity financing, totaling $11.6B.

So, rounds are down 32.8% and funding amount is down 38.6%.

I wanted to drill down and just look at Seed and Series A rounds, again, only in the US, on those same dates, March 15th to May 15th of this year (2016).

The query provided 293 rounds of equity financing, totaling $1.46B.

Again, wanted to compare it to the same time frame of last year.

The query provided 465 rounds of equity financing, totaling $2.09B.

So, Seed/A rounds are down 37% rounds and funding amount is down 30%.

This cooling off period is actually a great thing.  The funding environment was too frothy the last few years and there was a lack of discipline on both the CEO and VC fronts.  Companies are now focusing on getting a handle of their burn and spending their money in a slight more conservative rate.

While things have cooled, the good news for Founders is that there is still A LOT of money available to them.  The majority of VCs have new/newer funds raised.

Slack’s Valuation

As you may of heard, Slack just raised a $200M round of financing at a $3.8B valuation.

Per the first image below, they have 800K paying users.

If you look further down at the second image, you can see how much they charge paying users, between $6.67 per month or $15 per month.

Assuming all their 800K paying users are at the lower tier of $6.67 per month, they are at $64M in annual recurring revenue ($6.67 x 12 months x 800K).  If they were a public company at this revenue, they would be trading at a 60x revenue multiple ($3.8B/$64M).

If their 800K paying users were at the high tier of $15 per month, they are at $144M in annual recurring revenue and 26x revenue multiple ($3.8B/$144M).

Realistically, their users are paying somewhere in the middle of $6.67 and $15, so splitting the difference of 60x and 26x multiple, they would need to trade at a 42x multiple.

Taking a look at the Bessemer Cloud Index, you can see that the largest multiple of public saas companies is Workday, trading at a 10x revenue multiple.  So assuming the best case scenario, Slack is getting paying users at the upper tier of $15/month, the 26x revenue multiple is much bigger than Workday’s.  That being said and a major implication to their current valuation, they are growing at a much faster pace than Workday or any other company in the Cloud Index.

If you look at the valuation of companies in the Cloud Index, fourth image below, only 9 companies have a higher valuation than Slack’s $3.8B.

Given Slack’s revenue and growth rate, they could IPO today, but the big question is what their market capitalization could be.

slack-users-paid-seats-chart604669837416857657353263985459206005899137646592

$FB vs $TWTR vs Snapchat

When these companies were at a similar life stage, (ie going from ~$100M to ~$300M in revenue) they had very different private market valuations.

Snapchat = $16B
Facebook = $10B
Twitter = $8B

The question for me is whether one is over-valued or were the other two under-valued?

Here are some tweets below with links to the data.

 

2016, an opportunity for VCs

2016 is off to a very rocky start.  I don’t know if we are headed into the recession but the private market will be impacted with what is currently happening in Chinese stock markets, oil prices and US stock markets.

I expect 2016 to be similar to 2009 in terms of how the private market (venture world) will be impacted.  I suspect that many VCs are going to pull back this year, mainly to focus on existing portfolio companies in order to get them another round of equity/debt financing (aka oxygen) and/or help them get to an acquisition (or soft landing).

That being said, some VCs are going to be opportunistic and make MORE investments in 2016 vs 2015.  In down markets, VCs can get more ownership in companies since valuations drop due to supply/demand dynamics.  Many VCs will tell you that in order to generate 3x+ fund returns, entry valuation price / ownership % is critical.

I utilized CB Insights to research which VCs increased their Seed/Series A investment pace in 2009 vs 2008.  The top six firms that increased their pace were Founders Fund, First Round Capital, True Ventures, Accel Partners , Venrock and Bessemer (listed by most # of early stage deals in 2009).

It will be interesting to revisit 2016 and do a similar query to see which VCs increased their pace in 2016 vs 2015.