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US TECH
FUNDING
Morgan B en der, B en edict E v an s, Scot t Ku por
J u n e 20 15
2
What’s going on in the public markets?
What are all these “unicorns”?
What’s going on in venture capital?
3
0
20
40
60
80
100
1980 1985 1990 1995 2000 2005 2010
US tech IPO & private funding ($bn)
The starting point – what’s goi...
4
0
20
40
60
80
100
120
140
1980 1985 1990 1995 2000 2005 2010
US tech IPO & private funding ($bn, 2014 dollars)
…inflatio...
The argument
against a tech
bubble
6
0
200
400
600
800
1,000
1,200
1,400
1990 1995 2000 2005 2010 2015
S&P IT index (adjusted for inflation)
Tech market indi...
7
0
10
20
30
40
50
60
0
200
400
600
800
1,000
1,200
1,400
1990 1995 2000 2005 2010 2015
ForwardP/Emultiple
Indexprice
S&P ...
8
0%
5%
10%
15%
20%
25%
30%
35%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ...
9
0
1
2
3
4
5
1995 2000 2014 2020
Billion people online
And market size is for real this time
The internet is working now ...
10
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011...
11
0
50
100
150
200
250
300
350
400
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
US onl...
12
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010...
13
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1980 1985 1990 1995 2000 2005 2010
US tech funding (IPO + private) as % GDP
So fundi...
14
“It’s different this time.”
*2014 dollars, venture & IPO. Source: Capital IQ, Bloomberg, BEA, ITU, US Census, Jay
Ritte...
15
It’s different this time.
But, it’s always different!
So what’s going on now?
The unicorn hunt is a
big difference
17
The headlines are ominous.
61 US tech “unicorns” (private company with
>$1bn valuation).
75% of the largest VC investme...
18
0
20
40
60
80
100
120
140
1997 1998 1999 2000 2011 2012 2013 2014
US IPO and private tech funding by round size ($bn, 2...
19
0
2
4
6
8
10
12
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Aggregat...
20
0
2
4
6
8
10
12
14
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Aggre...
21
0
50
100
150
200
250
300
350
400
0
10
20
30
40
50
60
70
80
1980 1985 1990 1995 2000 2005 2010
NumberofIPOs
IPOfunding($...
22
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1980 1985 1990 1995 2000 2005 2010
US tech IPO & private funding
IPOs used ...
23
0
50
100
150
200
250
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Med...
24
Many companies that would in the past have
done an IPO are now doing late-stage
private rounds.
As you get to $40+ mill...
25
0
10
20
30
40
50
60
70
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U...
26
0
20
40
60
80
100
120
140
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201...
27
As IPOs are delayed, returns move from
public to private investors.
Thus, traditional public market investors and
buyou...
28
0
5
10
15
20
1998 2000 2002 2004 2006 2008 2010 2012 2014
Number of top 20 US tech deals with participation from non-tr...
29
Because the returns have moved
Tech returns used to be in public markets – have now shifted to private
* Market cap at ...
30
Almost all the returns are now private
Old world tech giants returned plenty in public markets – new ones have not
Note...
31
0
10
20
30
40
50
Facebook
(2012)
Twitter
(2013)
LinkedIn
(2011)
Yelp
(2012)
Implied market cap with similar post-IPO re...
32
741
374 369
277
212 199
171 151 151 145
111
77
40 38 29
0
100
200
300
400
500
600
700
800
Market Cap ($bn)
Finally, all...
Meanwhile, back in
venture capital…
34
0
20
40
60
80
100
120
1970 1975 1980 1985 1990 1995 2000 2005 2010
US tech VC fund inflows ($bn, 2014 dollars)
No surge...
35
And relative to output, fundraising is down
VC funding as a percentage of tech GDP is down by half from 1980
Note: Valu...
36
0
20
40
60
80
100
120
140
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 201...
37
0
10
20
30
40
50
60
70
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
D...
38
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201...
39
0%
50%
100%
150%
200%
250%
300%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Indexed US tech funding for $1m-...
40
The collapse in the cost of creating tech
companies in the last two decades means
many more are being created.
With eac...
41
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Number of rounds by cohort
Seed ro...
42
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Aggregate US tech investment...
43
0
5
10
15
20
25
0 1 2 3 4 5 6 7 8 9 10+
Total private + IPO funding by company age at funding, 1995-2014 ($bn, 2014 dol...
44
0
10
20
30
40
50
60
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tota...
45
0
500
1,000
1,500
2,000
2,500
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013...
46
0
5
10
15
20
25
30
35
40
45
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2...
47
0%
50%
100%
150%
200%
250%
300%
350%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Indexed US tech funding for...
48
0%
20%
40%
60%
80%
100%
120%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Indexed US tech funding for 0-2 yea...
49
Less money, more money
Which one do you want to believe? Both!
Order of magnitude reduction in the cost of
creating a s...
50
The shift in mix
Less money, more early stage
Source: Capital IQ, a16z
70.9
48.1
1999 2014
Total funding by deal type (...
51
Round sizes are mostly flat (to down).
Late-stage round sizes are not spreading
down the chain.
It’s never been cheaper...
It’s always different
53
A note on data
Sharing the perspectives and analyses presented in this deck required a time series of overall funding. ...
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Because the returns have moved
Tech returns used to be in public markets – have now shifted to private
* Market cap at IPO. Source: Capital IQ
0%
20%
40%
60%
80%
100%
Apple
(1980)
Microsoft
(1986)
Oracle
(1986)
Amazon
(1997)
Google
(2004)
Salesforce
(2004)
LinkedIn
(2011)
Yelp
(2012)
Facebook
(2012)
Twitter
(2013)
Private versus public market value creation for select public US tech companies
Public value
creation*
Private value
creation

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