Venture Capitalists' Confidence: Highest since 2007

The Silicon Valley Venture Capitalist Confidence Index® for the fourth quarter of 2013, based on a December 2013 survey of 32 San Francisco Bay Area venture capitalists, registered 3.94 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter's index rose slightly from the previous quarter's confidence reading. The Q4 confidence reading made for six consecutive quarters of increasing sentiment among the responding venture capitalists to this quarterly survey and research report.

This is the 40th consecutive quarterly survey and research report, the 10-year anniversary of the Index. Each quarter's index provides unique quantitative and qualitative trend data and analysis on the confidence of Silicon Valley venture capitalists in the future high-growth entrepreneurial environment. Mark Cannice, department chair and professor of entrepreneurship and innovation with the University of San Francisco (USF) School of Management, authors the quarterly research study.

In the new report, Cannice writes, "Momentum appears positive for venture investors and for their innovative portfolio firms." For example, Sandy Miller of Institutional Venture Partners said, "Good performing tech IPOs brighten the prospects for all young tech companies, and I am optimistic that 2014 will be a strong year. There's never been a moment in history when there are so many private venture-backed technology companies with real scale and rapid growth." Tim Draper of DFJ reflected, "Venture Capital and entrepreneurship have gone through a very difficult decade and things are finally looking up. I look forward to see the renewed optimism in our world. One reason is that companies have been working hard for a decade with very little liquidity, and suddenly there is liquidity."

"High potential portfolio firms at various stages of development are well poised to take advantage of this more liquid exit environment," concluded Cannice. To that point, John Malloy of BlueRun Ventures detailed, "The market is very positive, both for growth round valuations and exits. Companies started two to five years ago, that can show growth, are well-positioned in the current entrepreneurial environment."

Some venture investors raised caution, however. Jon Soberg of Blumberg Capital said, "I am optimistic on the future six to 18 months, but I think we may see some slowdown in the public markets that could impact the overall environment." Robert Ackerman of Allegis Capital stated, "While the level of innovation in Silicon Valley is unprecedented in its scope, there is risk of over heating in some areas, including social media and social commerce."

The current Q4 Index includes a special retrospective on ten years of research into Silicon Valley venture capitalist confidence, and is available here: https://www.usfca.edu/management/news/Silicon_Valley_Venture_Capitalist_Confidence_Index_Q4_2013/

DJX VentureSource Europe --3Q 2013

Highlights for 3Q 2013 include:

- European venture capital fundraising declined from 2Q 2013 and 3Q 2012 both in the number of funds and amount raised;

- Venture capital investment into European companies experienced a quarter over quarter decline;

- Business and financial services and energy and utilities were the only two sectors to register quarter over quarter increases in capital raised;

- Exits remain steady as venture-backed merger and acquisition (M&A) activity in Europe improved in 3Q 2013. Initial public offerings (IPOs), however, took a dip.

European Venture Capital Fundraising Experiences Decline from 2Q 2013 Levels

11 European venture capital funds accumulated €574million in 3Q 2013, a drop of 45% in amount raised from the prior quarter and a 15% decline in the number of funds.

In contrast with 3Q 2012, the number of funds fell by 35% while the amount raised declined by 30%. 3Q 2013 represents the lowest quarterly figures for amount raised and number of funds since 3Q 2011.

The largest fund of the quarter was Serena Capital’s FCPR Serena II fund, which raised €100 million, accounting for 17% of the total amount raised for 3Q 2013.

Venture capital funds have raised a total €2.36 billion across 38 funds in 2013 so far, down 14% and 24% from respective figures for the first 9 months of 2012.

Investment into European Venture-backed Companies Experiences Quarter over Quarter Decline

European companies raised €1.13 billion for 319 deals during 3Q’13, a 12% fall in the number of deals completed and a 32% decline in capital raised from the previous quarter.

In contrast with 3Q‘12, deal flow experienced a 7% uptick, while investment dipped by 1%.

In 2013 so far, 995 deals have been completed raising €3.9 billion, a respective 4% and 7% increase on figures posted for the equivalent 2012 period.

Equity Financings into Europe-based, VC-backed Companies, by Industry Group

(3Q 2013)

The business and financial services sector received the largest allocation of investment during 3Q’13 (26%), accumulating €294 million through 81 deals, an increase of 33% from 2Q’13 in capital raised and 7% in number of deals.

Healthcare held on to second position in terms of equity financing, taking a 21% share of all 3Q’13 investment. The sector raised €243 million across 39 deals, falling 44% and 46% from respective 2Q’13 figures.

The consumer services sector occupies third position, with companies gathering a 20% share of the total amount invested during the quarter. The sector received €228 million across 101 deals, an uptick of 3% in deal flow but a drop of 45% in capital raised from 2Q’13.

The IT sector saw its share of investment fall from 28% in 2Q’13 to 12% in 3Q’13. Companies in the sector completed 65 deals for a total of €131 million, a drop of 11% in deal flow and 72% in capital raised from the previous quarter.

Equity Financings into Europe-based, VC-backed Companies, by Country

(3Q 2013)

The U.K. reclaimed its position as the favoured destination for equity financing during 3Q’13 witha 48% share of all investment into European VC-backed companies.The country received €545 million across 94 deals, up 147% and 21% from respective 2Q’13 figures.

France rose one place to second despite capital and deal flow falling by 11% and 29% respectively from the previous quarter. The country received €183 million for 51 deals, representing a 16% share of all investment for 3Q’13.

Germany dropped to third raising €135 million, a 12% share of investment having had the largest allocation in Europe during 2Q’13. The investment figure represents the lowest quarterly amount for the country since 3Q’11.

Russia maintained fourth position raising €49 million in 19 deals, a decline of 59% in capital raised despite a 6% improvement in the number of deals completed.


Venture M&A Activity in Europe Experiences Uptick in 3Q 2013, IPOs Falter

M&As of venture-backed companies in Europe rose by 39% from 3Q‘12 with 39 deals completed during 3Q’13, three more than the number of M&As completed during 2Q’13.

The largest M&A of the quarter was Neolane SA, a provider of customer marketing and communications software, which was acquired by Adobe Systems Inc. for €459 million.

108 M&As have been completed for venture-backed companies in Europe during the first 9 months of 2013, up 3% from the 105 completed during the first 9 months of 2012 but down 29% from the equivalent 2011 period.

One venture-backed IPO took place during the quarter, down from the three completed during 2Q’13. Five have been completed for the year so far, a drop of 55% when compared with the first 9 months of 2012.

Details here

DJX VentureSource US 3Q 2013 - Dow Jones

Highlights for 3Q 2013 include:

- U.S. venture capital raised 11% more funds than the previous quarter and saw the highest number of funds since 4Q’08

- Venture capital investment was at its highest since 2Q 2012

- Median pre-money valuation decreased 7% from 2Q 2013

- Both Initial public offerings (IPOs) and mergers and acquisitions (M&As) experienced an increase from the previous quarter

Venture Fundraising Increases in U.S. during 3Q 2013

62 funds garnered $4.1 billion in 3Q 2013, an 11% increase in number of funds, but a 47% decrease in the amount raised from the prior quarter. Greylock XIV Limited Partnership, the largest U.S. venture capital fund of the year, raised $1 billion, accounting for 25% of the total amount raised in 3Q 2013. Median U.S. fund size was $123 million in the three quarters of 2013.

U.S. Venture Investment on the Rise in 3Q 2013

U.S.-based companies raised $8.1 billion from 806 venture capital deals in 3Q 2013, a 2% increase in capital and a 4% decrease in number of deals from the previous quarter.Compared to the same period in 2012, a 10% decrease was registered in number of deals, while amount raised went up by 4%.

The only sectors that experienced an increase in amount raised were Business and Financial Services (46%) and Consumer Services (1%). Information Technology (IT) saw the largest investment allocation, with 246 deals garnering $2.3 billion and accounting for 28% of total equity investment. Business and Financial Services registered the highest quarter over quarter amount increase (46%), accumulating $2.2 billion through 195 deals. Healthcare placed third with $1.8 billion in 164 deals. The sector reported a 12% decrease in amount raised and a 7% decrease in number of deals. $1.3 billion were raised by Consumer Services in 148 deals, a decrease of 10% in deal flow, while capital invested went up by 1%.

Venture M&A and IPO Market Activity in the U.S. during 3Q 2013

Mergers and acquisitions (M&As) of venture-backed companies increased by 11% from 2Q 2013, with 111 deals garnering $9.7 billion, number of deals also increased 25% compared to the previous quarter, when 89 M&As garnered $8.7 billion.

The largest M&As of the quarter were Aragon Pharmaceuticals Inc., which was acquired by Johnson & Johnson Inc. (NYSE: JNJ), and Trusteer, acquired by International Business Machines Corp. (NYSE:IBM), both for $1 billion.


25 venture-backed companies raised $2.2 billion through public offerings in 3Q 2013. Both number of deals and capital raised increased from the previous quarter, registering respectively a 25% and 24% increase.

The largest IPO of the quarter was FireEye Inc. (NASDAQ: FEYE), which completed a $304 million IPO.

Details here

Private Equity Investments in ex U.S. Developed and Emerging Markets Outperformed Their Public Market Counterparts in the Second Quarter

Private equity and venture capital funds investing primarily in developed markets outside the U.S. posted a positive return for the second quarter and improved on their first-quarter performance. Private equity investments in emerging markets had the opposite result, falling from a solid first-quarter to a slightly negative return for the period, according to global institutional investment advisor Cambridge Associates LLC (C|A).

The Cambridge Associates LLC Global ex U.S. Developed Markets Private Equity and Venture Capital Index increased 2.4% in the period ending on June 30, 2013, as measured in U.S. dollars. The results were helped by a stronger Euro during the quarter. The Cambridge Associates LLC Emerging Markets Private Equity and Venture Capital Index dropped 0.4% over the same period. For comparison, the MSCI EAFE index fell 1.0% during the quarter, and the MSCI Emerging Markets index dropped 8.0%.

Both private equity indices outperformed their public market counterparts in six of the eight time periods shown. The developed markets index fell behind the MSCI EAFE only on shorter time horizons (the year-to-date and the one-year marks), while the emerging markets index lagged the MSCI Emerging Markets index only over two longer terms – the 10- and 15-year periods.

Q2 Highlights from the C|A ex U.S. Global Developed Markets Inde

xThe Two Largest Vintage Years were also the Top Two Performers

Only five vintage years in the developed markets benchmark represented at least 5% of the index’s value (significantly-sized). Of these, funds raised in 2007, the second largest vintage, earned the quarter’s best return, 3.3%. Funds raised in 2006, the largest vintage, earned the second highest return, 3.0%. Together, the 2006 and 2007 funds represented almost 52% of the index’s value, making them by far the largest contributors to the index’s performance for the quarter. The 2005 vintage year funds earned 1.3%, the lowest return among the top five vintages.

Capital Calls and Distributions both Increased over Q1

Fund managers in the developed markets index called $6.7 billion from their limited partners (LPs) in the second quarter, a 10.4% increase over the first quarter. LP contributions for the first six months of 2013, however, were the lowest for any six-month period since the second and third quarters of 2009. Distributions for the second quarter were up sharply, to $12.7 billion, a 43.2% increase from the previous quarter’s total. Four vintages – 2007, 2008, 2011, and 2012 – accounted for about 79% of the second quarter’s total distributions, as well as about 82% of its capital contributions.

Media Had the Highest Return among the Largest Sectors

Six of the seven significantly-sized sectors earned positive returns for the quarter. Media companies did best as a sector, returning 7.9%, with healthcare a fairly close second, returning 7.4%. The only negatively-performing sector was energy, which returned -0.2%. Consumer companies represented almost 27% of the index’s value, which was by far the largest of any sector, and earned a collective return of 4.1%.

The U.K. Had the Top Return among the Largest Developed Markets

Five countries represented 62.4% of the index, with all but one (the U.S.) located in Western Europe. Returns among the five ranged from a high of 7.6% for companies headquartered in the U.K. to a low of -1.3% for those having headquarters in Germany. U.S.-based companies were the second-best performers in the index, earning a return of 4.3% for the quarter.

Q2 Highlights from the C|A Emerging Markets Inde

xThe emerging markets index remained concentrated along three dimensions in the second quarter: vintage year, sector, and geographical region. Five vintage years represented 84% of the index’s value; companies in five sectors comprised just under 71% of the index; and businesses located in only four countries represented slightly over 54% of the index.

Performance among the Largest Vintage Years Was Mixed

Of the five largest vintage years in the emerging markets index, two posted small positive gains in the second quarter, while the other three had similarly small losses. The range from top to bottom was only 3.2%, with funds raised in 2006 returning 1.5%, the best in the group, and those raised in 2007 returning -1.7%, the lowest return among the five. Increases in the valuations of healthcare companies were the main drivers of the 2006 vintage’s performance. Write-downs in the consumer, financial services, and construction sectors hurt the 2007 vintage’s return.

Record-Setting Level of Distributions

As in the developed markets index, capital contributions and distributions both rose over the prior quarter. “After falling more than 50% in the first quarter, contributions were up 75% to $3.4 billion. Distributions increased dramatically as well, jumping 123% to $5.6 billion, the highest quarterly amount in the 27-year history of the emerging markets index. This was also the second quarter in a row in which managers in the index distributed more capital than they called,” said C|A Managing Director Miriam Schmitter.

Almost 60% of the total dollar amount of calls came from managers of funds raised in 2006, 2007, and 2008. More than three-quarters of the capital distributions during the quarter went to limited partners of funds raised in vintage years 2005 and 2007.

Information Technology was the Top-performing Sector

Three of the five meaningfully-sized sectors in the emerging markets index had negative returns for the quarter: consumer, financial services, and manufacturing. Of the three, financial services had the weakest performance, earning a -2.6% return. Information technology and healthcare were the two largest sectors with positive returns, earning 6.4% and 4.5%, respectively.

Russia Returns to “Meaningfully Sized” Status

Only four countries represented more than 4% of the emerging markets index’s value. Companies headquartered in Mainland China continued to dominate the index, representing 34.7% of the benchmark’s value and earning 0.7% for the period. India-based companies were a distant second, representing 9.0% of the benchmark and falling 4.6% for the period. Rounding out the top four regions were Russia, which regained its designation as significantly-sized, and South Korea. Both posted positive returns for the quarter: Russia earned 1.9%, the highest return of the four largest regions, while South Korea earned 1.6%, the second highest.

VENTURE CAPITAL FUNDS RAISED $4.9 BILLION DURING FOURTH QUARTER 2013

Full Year 2013 Fundraising Slowest Since 2010

U.S. venture capital firms raised $4.9 billion from 48 funds during the fourth quarter of 2013, an increase of 12 percent compared to the level of dollar commitments raised during the third quarter of 2013, but a 21 decrease by number of funds, according to Thomson Reuters and the National Venture Capital Association (NVCA). The dollar commitments raised during the fourth quarter of 2013 is a 53 percent increase from the levels raised during the comparable period in 2012 and marks the strongest quarter for venture capital fundraising, by dollars, since the third quarter of 2012. Venture capital firms raised $16.7 billion from 185 funds during full year 2013, a 15 percent decline by dollar commitments compared to full year 2012 and the slowest annual period for fundraising since 2010.

“Venture capital fundraising in 2013 ended much in the way it began - with continued concentration within the larger funds and a sense of optimism for the coming year,” said Bobby Franklin, president and CEO, National Venture Capital Association. “The difference today is that there is hard evidence of an improving exit market, which will actually help realize some of this positive momentum as limited partners again include venture as a vital component of their portfolio. If the IPO market continues to strengthen and receive quality offerings, we can expect more VCs involved in those exits to raise money in 2014, which will bode well for a new crop of startups looking to raise capital,” Franklin added.

There were 34 follow-on funds and 14 new funds raised during the fourth quarter of 2013, a 2.4 to-1 ratio of follow-on to new funds. The number of new funds raised during the fourth quarter marks a 22 percent decrease from the number of first-time funds raised during the third quarter of this year. During full year 2013, 53 new venture capital funds raised $1.5 billion, an 11 percent decline by dollar commitments and 25 percent decline by number of new funds.
The largest new fund reporting commitments during the fourth quarter of 2013 was from Minnesota-based TTCP Fund I, L.P. which raised $132.0 million for the firm’s inaugural fund. A “new” fund is defined as the first fund at a newly established firm, although the general partners of that firm may have previous experience investing in venture capital.

Fourth quarter 2013 venture capital fundraising was lead by New York-based OrbiMed Private Investments V, L.P. which raised $699.5 million, and Massachusetts-based General Catalyst Group VII, L.P. which raised $675.0 million. The largest venture capital fund raised during full year 2013 was from Greylock XIV, L.P., which raised $1.0 billion during the year.