FOREWORD“Venture Capital” — financing an endeavor in exchange for a share of proceeds in a broad sense is as old as Columbus, and beyond.
Its modern form as a type of “private equity” for early stage high growth firms — beyond wealthy individuals and families — started in 1946 with French-born AmericanGeorges Doriot, the “father of venture capitalism”.
Disrupting the Spice Trade
Christopher Columbus pitched the rulers of
Portugal, Genoa, Venice and Spain over
7 years until the latter agreed to fund him.
This presentation lists some of the significant evolutions in the financing of early stage high growth companies.
We used a broader definition of venture capital to include various forms of crowdfunding.
VC INNOVATION
Investors are always looking for new ways to allocate capital.
The key questions revolve around risks, returns, liquidity, costs, volatility, velocity, difficulty and amount of capital that can be deployed.
WHY INNOVATE?
TIMELINE OF VC INNOVATION
19721946 2010 20122005 20172009 20112004 20071996 2013 20152006 2008
Sand Hill Rd Super Angel
Sponsored Accelerator Product Crowdfunding
Secondary Market Angel List
Accelerator Fund
JOBS Act
Vertical Accelerator
Corporate Accelerator Regulation A+
VC ICO
ARDCFirst VC
Product Crowdfunding
Startup Studio Accelerator Company Builder Platform VC“DST Deal” Equity Crowdfunding ICO
RegA+ NYSE IPO
SPAC
Note: HAX is a hardware-focused vertical program part of SOSV
Startup accelerators are (generally) companies offering seed money, advice and connections over an intense and limited time period, in exchange for equity.
Co-founded in March 2005 by Paul Graham
Y Combinator created a new category of incubators
ACCELERATORS
As of 2017, the world counts thousands of accelerators.
Some focus on a sector, geography or stage.
They can be for-profit, non-profit, government-backed, sponsored, corporate, etc.
ACCELERATORS
Accelerators Come In Many Flavors
The “Big Four” Invest In >100 Startups / Year
Vertical
Non-Profit University Corporate
Sponsored Government
Some investment firms build startups themselves, providing capital and management.
Germany’s Samwer Brothers Founded
Rocket Internet To Build Local Clones
Of Successful Startups
COMPANY BUILDERS
Several venture capital firms started offering a broad range of services to attract and support startups, from recruiting to marketing.
The firm AndreessenHorowitz is among
the most prominent “platform VCs”
PLATFORM VCs
Secondary markets can offer early liquidity to founders, investors and/or employees.
SecondMarket helped buy and sell illiquid
assets such as private company stocks.
It was acquired by NASDAQ in 2015.
SECONDARY MARKETS
Created in 2010 as a matchmaking platform between startups and angel investors.
Since 2015 it allows startups to raise capital from private investors free of charge.
Naval Ravikant
Co-Founder of AngelList
ANGELLIST
As of October 2017 AngelList saw over $650M invested in 1,705 startups and $5.7B in follow-ons.
0
200
400
600
2014 2015 2016
Source: AngelList
STARTUP INVESTMENTS VIA ANGELLIST
OCULUS Raised $2.4M
Acquired for $2BPRODUCT
CROWDFUNDINGProduct crowdfunding is a useful source of capital for startups, particularly in hardware.
Backers generally receive products as reward but no equity.
Note: SOSV is an investor in Makeblock
MAKEBLOCK Raised $185,000 in 2012
500 staff in 2017
The “Jumpstart Our Business Startups” Act is a law intended to help small businesses with funding.
President Barack Obama
signed the JOBS Act
into law on April 2012
JOBS ACT
Further updates to the JOBS Act clarified and eased the rules for equity crowdfunding.
REG A+ / D / CF
Source: SeedInvest
EQUITY CROWDFUNDING
Equity crowdfunding platforms allow individuals to invest directly in companies.
SeedInvest is one of the leading platformsfor equity crowdfunding
“Initial Coin Offerings” are a largely unregulated means of crowdfunding via use of cryptocurrency.
In most cases, the “tokens” sold give access to services and do not equate to company shares or voting rights.
Mastercoin (now Omni) completed the world’s
first ICO in 2013, raising about $500k.
ICOs
Several investors have turned to ICOs to raise new funds. Those funds are often dedicated to investing in crypto-related startups shares or tokens.
Two key benefits is to provide immediate liquidity and a more inclusive base of “LPs”.
Blockchain Capital raised US$10 million in an ICO
VC ICO
Special Purpose Acquisition Companies (SPAC) are “blank-check” or “shell” firms that have no operations but go public with the intention of using the proceeds to merge with or buy part or all of a company.In Sept’17, the IPO of a SPAC by Social Capital
raised US$600M on the NYSE. Draper Oakwood
raised US$50M on NASDAQ.
SPAC
Source: Wikipedia
New ideas are coming, from “Reverse ICO” and a Stock Exchange favoring long-term holding. Both are yet to be tried out.
Time will tell if VCs discover new ways to find capital to deploy, and offer startups more access to funding, communities and customers.Tulip bulbs were a highly speculative
asset class circa 1636.
WHAT NEXT?
1995 201420122010 2018
SOSV EVOLUTION TIMELINE
Angel investor
China/Cross-border Accelerator
Single LP Fund
Hardware Lab to Market
Vertical Accelerator
Life Sciences + Food
Multiple LPs
2015
(next fund)Platform VC
Mobile-OnlySean O’Sullivan
Hardware Sales & Marketing
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