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Global Venture Capital Distribution

A VC : Venture Capital and Technology

Richard Florida published some stats on the distribution of global venture capital investment last week. SF proper and the broader bay area make up 25% of the global venture capital investment activity (~$10bn out of $42bn).

Venture Capital Returns

A VC : Venture Capital and Technology

This post is for everyone who thinks venture capital is an easy business. Here are short term and long term returns for the venture capital business over the past ten years compared to the public equity markets in the US. Venture Capital and Technology

Starting Is Easy, Finishing Is Hard

A VC : Venture Capital and Technology

The capital requirements to get started have come way down in both software and hardware businesses. The supply of seed and venture capital has increased dramatically as well. Starting a company has gotten much easier over the past decade. And there are all sorts of programs aimed at helping entrepreneurs get started. All of this has caused a rapid expansion of entrepreneurship, startups, and innovation. This is all great.

Convertible and SAFE Notes

A VC : Venture Capital and Technology

Honestly, I wish the whole scourge of notes would go away and we could go back to the way things were done for the first twenty years I was in the venture capital business. Angel/seed rounds used to be done via priced equity securities, either common or preferred. Then, starting about ten years ago, we started to see convertible debt being used in the angel and seed rounds. By 2010 this was the norm and Paul Graham tweeted this in Aug 2010: Convertible notes have won.

What Did And Did Not Happen In 2016

A VC : Venture Capital and Technology

The truth is that startups, venture capital, and tech growth companies had a pretty good year in 2016 all things considered. As has become my practice, I will end the year (today) looking back and start the year (tomorrow) looking forward. As a starting point for looking back on 2016, we can start with my What Is Going To Happen In 2016 post from Jan 1st 2016. I thought AR/VR and wearables would disappoint in 2016. They did.

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The Hard Raise

A VC : Venture Capital and Technology

In the summer of 2003, Brad Burnham and I set out to raise a $100mm early stage venture capital fund. We spent our own capital raising that fund. But that fund, USV 2004, has been one of the very best venture capital funds ever put together. We have had a few of these in our portfolio over the past year as the expansion capital stage (Series C and D) of the venture capital market has contracted.

The Startup Curve

A VC : Venture Capital and Technology

Venture Capital and TechnologyI'm working with a few startups right now that are in various phases of Paul Graham's startup curve : Many people think startups are up and to the right all the time.

Mocked And Misunderstood

A VC : Venture Capital and Technology

Venture Capital and Technology Web/TechWhen people ask me, "how do you know which companies and services are going to be the biggest successes?", ", I usually tell them to look for the companies and services that are mocked and misunderstood.

What Is Going To Happen In 2016

A VC : Venture Capital and Technology

Markdown mania will hit the venture capital sector as VC firms follow Fidelity’s lead and start aggressively taking down the valuations in their portfolios. It’s easier to predict the medium to long term future. We will be able to tell our cars to take us home after a late night of new year’s partying within a decade. I sat next to a life sciences investor at a dinner a couple months ago who told me cancer will be a curable disease within the next decade.

Entrepreneurs Have Control When Things Work, VCs Have Control When They Don't

A VC : Venture Capital and Technology

2) Whether the Company needs more investment capital and where it is coming from. Venture Capital and TechnologyI did an interview yesterday in Buffalo, NY where I was the past couple days for the launch of the Z80 incubator.

Venture Deals 3.0

A VC : Venture Capital and Technology

Like a great software product that keeps getting better and better as it ages, the classic book by Brad Feld and Jason Mendelson , Venture Deals , is now on its third version. I was 25 years old, it was 1986, and I had just landed a summer job in a venture capital firm. I was working for three experienced venture capitalists in a small firm called Euclid Partners, where I ended up spending the first 10 years of my VC career.

In Defense Of Free

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mobile Venture Capital and Technology Web/TechI have written so much about free here at AVC that it should be called AVFree. In fact, I've even written a post with this exact same title (almost exactly seven years ago, the summer we invested in twitter, zynga, and tumblr).

What Do You Look For?

A VC : Venture Capital and Technology

Venture Capital and TechnologyI'm asked this question all the time. Is it team? Is it the idea? Is it product? Is it market? The answer is that it is all of them and most importantly it is the way they all come together in a single company. Why is this the right team to do this?

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You Can Do Too Much Due Diligence

A VC : Venture Capital and Technology

It's Monday, time for another lesson I've learned in the venture capital business. MBA Mondays Venture Capital and Technology Today I will tell a story that I love telling. It has some of my favorite people in it. Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a blog's RSS feed.

The Billion Dollar Valuation Club

A VC : Venture Capital and Technology

  Venture Capital and Technology Aileen Lee has a really good post up on TechCrunch , in which she analyzes the number of companies that have been started since 2003 that have gone on to be worth $1bn or more. This is a very useful exercise in the VC business since it is these big wins that produce the vast majority of returns in the business.

What Has Changed

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there is a large pool of money in the venture capital asset class that is opportunistic, momentum driven, and thesis agnostic. this pool of capital was "all in" on consumer web/social web in the 2009-2011 time frame. it drove a lot of activity throughout the venture capital markets because each layer of the VC stack (angel, seed, Srs A, Srs B, Srs C, etc) needs to be aware of what the next layer up wants to fund.

Loss Ratios In Early Stage VC

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Or you can calculate loss ratios by "dollars" meaning how much of the capital invested in the fund went into total losses. That fund will be the best venture fund I have ever worked on. Venture Capital and Technology When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied "that's not good, you aren't taking enough risk."

You Are Not Your Work

A VC : Venture Capital and Technology

entrepreneurship Venture Capital and Technology My friend Gary said this to me the other day in an email. He wasn't talking about me but he could have beeen. Last night I went to bed thinking about my work, dreamt about my work, and woke up thinking about my work. It's been that way for me since I started Flatiron in the mid 90s. To some extent it's been that way for me since college.

How Much Money To Raise

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You may need to have more cash on your balance sheet for working capital reasons and you may not be increasing value at quite the same rate as you were when you were smaller. Venture Capital and TechnologyImage via Wikipedia.

Video Of The Week: The Tech Tonic Discussion

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Politics Venture Capital and Technology

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Fund Level Vs Deal By Deal Carry

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In a venture fund, the general partners will make something like twenty or twenty five investments. A few venture funds will make less investments than that. The thing I want to talk about is how losses (and gains) are treated in a venture fund. A traditional venture fund will take its losses on a given portfolio of twenty to twenty five investments and earn them back with their gains before calculating their carried interest. That’s $50mm of invested capital.

The Power Of Diversification

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If you assume that the average startup has a 33% chance of making money for the investors, a 33% chance of returning capital, and a 33% chance of losing everything and that only 10% will make a big return (>10x), then you can model this out. Venture Capital and Technology

What VC Can Learn From Private Equity

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Finally, the first venture capital firm I helped start, Flatiron Partners, was backed by and initially housed inside a private equity firm, Chase Capital Partners, and Jerry and I learned a lot from attending their weekly investment meetings and listening to them talk about their business. Venture Capital and Private Equity are very different investment disciplines. Venture Capital is minority investing. Venture Capital requires it.

A Different Approach To VC

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So we can’t talk about venture capital without talking about Unicorns, right? percent of companies are using a product, venture capital, that really doesn’t work for them. you have entrepreneurs building companies, building customer bases, designing interactions with their users in order to make themselves appealing to venture capital. I wrote this to my partner the other day. I’m not going to provide the context. It doesn’t matter.

Rethinking Mobile First

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mobile Venture Capital and Technology Web/TechI wrote the Mobile First Web Second blog post a few years ago. In that post, I talked about apps that were designed to be used on mobile primarily with the web as a companion. There have been a number of startups that have taken that approach and done well with it. Most notably Instagram, and also our portfolio company Foursquare.

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Mary Meeker's 2012 Internet Trends

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechMary published this presentation this past week. I love these "state of the internet" presentations Mary does. There is so much useful information and insights in them.

Founder Dilution

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Here’s the most important quote from those two posts: In my experience, it will generally take three to four rounds of equity capital to finance the business and 20-25% of the company to recruit and retain a management team. Raising round after round of venture capital is expensive. I saw a blog post this weekend that looked at the IPO filings of 79 tech companies and calculated the ownerships of the founders and the VCs at IPO.

Mobile Is Where The Growth Is

A VC : Venture Capital and Technology

mobile Venture Capital and Technology Web/TechIf you look at any of the top web properties on comScore, Quantcast, Alexa or any other third party reporting service you will see that they all have been fairly flat over the first half of the year. You might think that all these big web services are flatlining. We have seen this in our portfolio too. From board meeting to board meeting, we are seeing a similar pattern. Web is flattish. But mobile is growing like a weed.

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When Things Don't Work Out

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Venture Capital and TechnologyI have said many times that early stage VC is a lot like baseball, if you get a hit one out of every three times, you are headed to the hall of fame. And if I look back over my career, and also over the track records of the firms and funds I have helped manage, that is pretty much the hit rate I have seen. By "hit" I mean an investment that returns 5x or better. But of course, many of these hits return 10x or even 100x every once in a while.

Starting and Finishing

A VC : Venture Capital and Technology

entrepreneurship management Venture Capital and Technology AVC regular Donna White posted this to her Tumblr yesterday: I'm a crotchety old guy. I worry about all these new companies. I’m glad that they’re easier to start, but the problem is, they’re just as hard to finish as they have always been. The quote is from Mike Olson in this post. The thing in Mike's quote that really speaks to me is the difference between starting and finishing.

Who You Want On Your Board

A VC : Venture Capital and Technology

One of the guys who taught me the venture capital business used to say "success is in inverse proportion to the number of VCs you have on your board." entrepreneurship Venture Capital and Technology" He was right. For a few reasons. First of all, most VCs get on your board by virtue of financing rounds you do. If you do a lot of financing rounds, you will collect enough VCs on your board to field a basketball team. And that sucks.

Video Of The Week: Paul Graham in 2005

A VC : Venture Capital and Technology

entrepreneurship Venture Capital and Technology There are a lot of awesome people in the startup community, but Paul is among the most awesome.

Investing In Startups In Europe

A VC : Venture Capital and Technology

Venture Capital and Technology One of the big european tech conferences starts today. It's called DLD and my partner Albert is giving a talk there tomorrow. The last big european tech conference was LeWeb and I gave a talk there. You might wonder why we fly across the pond to attend and talk at these events. The answer, as  Sten Tamkivi explains in TechCrunch , is that europe is a great place to invest in startups.

How Well Do You Take A Punch?

A VC : Venture Capital and Technology

Venture Capital and TechnologyI was talking to a friend who has been displaced because of Sandy. They are struggling to get back to their daily routine and it is hard living out of a suitcase without access to the things they rely on from day to day. I was talking to the CEO of a company whose business was negatively impacted by Sandy. They are struggling to get the business back to where it was before the hurricane. One is a personal thing. The other is a work thing.

The art of important work, of making a ruckus and of inventing the future

A VC : Venture Capital and Technology

Venture Capital and TechnologyEntrepreneurs teach VCs , not the other way around. And I was lucky early in my career to back Seth Godin , who taught me a lot. When I met Seth, he was writing books and building a web company. I backed that web company, Yoyodyne, which exited to Yahoo! a few years later. But books were always Seth's passion and he's written a bunch of them.

Some Perspective

A VC : Venture Capital and Technology

stocks Venture Capital and TechnologyI don't disagree with PG when he says that Facebook's IPO performance (or lack thereof) has the potential to impact valuations in startup land. I think it will be particularly impactful on the late stage and secondary markets where most of the IPO valuation speculation is happening. But let's put Facebook's current valuation in perspective.

#startupstories

A VC : Venture Capital and Technology

Venture Capital and TechnologyThe NY Tech Meetup has produced a series of short videos talking about some of the key early challenges that startups face.

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The Twitter "Patent Hack"

A VC : Venture Capital and Technology

Many years ago now, my prior venture capital firm, Flatiron Partners, invested in a company called Thinking Media. Venture Capital and Technology Web/TechYesterday Twitter announced that they plan to amend the assignments agreements that they sign with their employees. They call this proposed amendment the Innovator's Patent Agreement.

Where's My Billion Dollar Check, I Wonder

A VC : Venture Capital and Technology

Venture Capital and TechnologyWhen a blockbuster deal happens, a lot of people get excited. The press is all over it, money comes pouring into startups in search of the next one, people quit jobs and school to get in the game. It's a gold rush. But there's another reaction that I have heard a lot in the past few weeks that is quite different. It is "why not me?" " The title of this post is from an email between me and an entrepreneur I know who will go nameless.

Return and Ridicule

A VC : Venture Capital and Technology

So many folks in the venture capital business are sheep that just want to follow the herd. Venture Capital and Technology I am going down to Princeton today to talk to Ed Zschau's class on entrepreneurship today. Ed asked me what I wanted to talk about. I told him "return and ridicule" I have found that return and ridicule are highly correlated over the years. We have made more money on things that were highly ridiculed than on any other cohort.