From marketplaces that help you find you a cleaner for your home to online wineries to personal styling services, eCommerce startups continue to attract the attention of VCs. However, it looks like the smartest money in venture capital are starting to pull back their investment activity into the eCommerce space.
In August 2012, Andreessen Horowitz investor Chris Dixon wrote on eCommerce startups, “The bear case is that scale and brand effects make e-commerce incumbents nearly unbeatable.” It looks like smart money VCs taking that to heart?
Much of the public dialogue about venture capital returns is based more on myth than fact, which reinforces inappropriately limited views of relative sector attractiveness, underlying risk profiles, and the “business models” that work in venture. A big part of the problem is that anecdotal stories about great returns drive much of the thinking. Another big contributor is that detailed venture data is hard to find and relatively few large datasets have been explored extensively.
The venture capital industry creates value that far outweighs the dollars allocated to it. But ten year returns to investors haven’t reflected that fact.
Innovation presents opportunities to solve customer problems more effectively and efficiently. But creating solutions that don’t yet exist involves a high degree of uncertainty. Usually, you need to spend a considerable amount of time and money before you know your efforts are going to pan out. That’s where risk capital comes into play; private investors invest money with the hopes of earning outsized returns to account for the level of risk they’re taking.
According to the data, yes, the venture capital industry is shrinking. And it has been shrinking for several years. We have documented a trend of industry consolidation since 2009, and our latest analysis confirms that the trend persists. We find that venture capital dollars continue to concentrate increasingly in the hands of fewer and fewer venture capital firms.
Few agree as to whether there’s a bubble in venture capital. Bill Gurley says there is one, Marc Andreesen says there isn’t, and so forth. Either way, some journalists have been quick to note that if there is a bubble, it is different this time. Because venture capital is funded by private, wealthy investors, the thinking goes, at least mom-and-pop investors aren’t at risk.
The June 2014 issue of Harvard Business Review has an important trio of articles that examine whether capitalism is on the right track, under the banner, “Are Investors Bad For Business.” I will discuss each of the articles in separate reviews, beginning with the article by Clayton Christensen and Derek van Bever, “The Capitalist’s Dilemma.” Some of the ideas in the article are wonderful. To understand what’s going on, it’s helpful to see the evolution of Christensen’s thought over several decades.
Four years ago Dr. Scott Shane wrote about a presentation he had made at a workshop at Federal Reserve Bank of Cleveland on trends in the venture capital industry. In the intervening period, a number of people have asked for updated slides.
The updated venture capital trends slides are now available. This article will highlight key venture capital trends.
Venture Capital Investors Rely on Acquisitions, Not IPOs, To Exit
Acquisitions have accounted for more than 80% of venture capital exits since 2001, according to data from the National Venture Capital Association. See slide above.
Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.
2013 had all the signs of being a comeback year for venture capital. Booming public equities and a recovered IPO market generated record portfolio company exits and distributions from VC funds. The industry realized its highest returns since the Internet boom.
Yet 2013 annual industry performance data from Cambridge Associates shows that venture capital continues to underperform the S&P 500, NASDAQ and Russell 2000.
As everyone in biotech knows, the last eighteen months have been an unprecedented time in the public capital markets. 2014 is on track to become the best year ever for life science IPOs, topping both 2013 and 2000. Last week was the busiest single week – with eight IPOs – since February 2000. Over 120 life science companies have gone public since the beginning of last year.
This staggering volume of deals has brought nearly $10B of public equity financing to emerging life science players, at attractive prices, which serves as much-needed growth capital to advance their pipelines.
