The Spectacular Booms of the Silicon Valley Dream

• By Sara Breselor and Victoria Tang
• April 16, 2013 | 
• 6:30 am | 
• Categories:Wired

IT’S THE GOLDEN FRONTIER of the American dream, where the Next Big Thing is anyone’s game and where there is, in fact, such a thing as a free lunch (or at least a massive valuation). Despite its past spectacular failures, the Valley has continued to birth the greatest businesses of the digital age while somehow building on its astonishing economic impact—this boomtown refuses to bust.
Illustration: Eric Fischer

1993 2003 2011

The Five Key Dynamics of the Seed Market in 2013

Last night I spoke at the Enterprise Tech VC Panel. We discussed five trends in the seed market and the outlook for 2013. These are the five most important trends for 2013, in my view.

MicroVC Funds Have Doubled Their Assets

Call it micro-VC or mega-seed fund, there's a new investor class which raises funds between $50 and $100M to invest in seed-stage companies. Felicis manages a $70M fund, Jeff Clavier at Softech invests from a $55M fund and Steve Anderson of Baseline has raised at two funds totaling $100M. These seed investors invest larger amounts than before (both initially and during follow-on rounds) and invest in more startups.

Seed Round Sizes Have Ballooned

In 2008, when I first started in venture, a$500k seed was sizable. A $1M seed turned heads. Today, those amounts are routine, if small. In the past year, micro-VCs have doubled the capital they invest each year to $1.6B. In addition, traditional VCs also have continued to participate actively in the seed market. As a result of these two pools of capital entering the market, seed rounds are approaching Series A sizes. Lacking accurate census data to illustrate the trend, I'll use an extreme case to prove the point: Virool raised $6.6M last week in a “party” seed round.

CrowdFunding and MarketPlaces Bring New Viable Forms Of Seed Capital

No one can argue with the success of fund raising campaigns on KickStarter and Indiegogo. Ouya effectively raised a $8.6M Series A in the form of early orders on Kickstarter. In addition to crowdsourcing sites, Angelist (in partnership with SecondMarket) and FundersClub attract $1k+ investment sizes from non-traditional angels looking for exposure to startups. As a friend pointed out to me, it all feels a bit like the 1999 bubble, when everyone can and wants to invest in a dot-com. Instead of using the public markets to buy shares, private markets have blossomed to meet this demand.

Mezzanine Seed Funds Have Entered The Market

You don't often hear the word mezzanine in the valley. It's much more common in private equity conversations. But with the boom in seed investments, driven by the capital flooding the asset class, mezzanine seed funds have taken root. Mezz seed funds target startups who have raised a seed round, but haven't been able to achieve the milestones to attract a Series A investment. So they seek a second seed round, a mezzanine seed round, for a bit more runway and a second chance to raise an A.

Rising Labor Costs Increase Burn But Fuel The Acquihire Trend

As infrastructure costs plummet, labor costs are soaring because of a talent supply/demand imbalance. These labor costs require larger seed rounds to achieve the same runway. In fact, for most of Redpoint's portfolio companies, labor is the single biggest line item on the P&L.
On the other side of the coin, the overwhelming demand for top talent drives the acquihire market. Every major technology company has a talent acquisition strategy based on M&A. Acquisitions by FB, GOOG, YHOO, EBAY and others provide a landing place for struggling seed companies looking for strategic options and a non-zero return for investors.

The New Bull Market

The seed market feels like a bull market: lots of capital rushing in, new asset classes being created, and a ton of opportunity for entrepreneurs looking for some early capital to change the world.
NB: Thanks to Sundeep Peechu and Chris Gottschalk who inspired this post. And thanks to Mike and Victor for inviting me to the panel discussion.

Source: Tontumguz.com

Google, No. 3 most active venture-capital firm

Google is close to becoming the top dog in yet another business sector: venture capital.
The search giant’s 4-year-old financing arm, Google Ventures, has quietly become the country’s No. 3 most active venture-capital firm, according to a recent report.
Google Ventures, which has $300 million a year to invest, participated in 71 funding rounds in 2012, according to data from CB Insights.
“Google has become a favored destination for entrepreneurs,” said Anand Sanwal, CB Insights’ CEO.
The allure of Google Ventures is obvious: worldwide brand recognition and access to some of the brightest bulbs in Silicon Valley.

Splash News

Google—headed by Larry Page (above) — in addition to dominating search and online advertising, has becomeamajor force in venture-capital investing.

“Google is doing stuff to help the companies recruit, making its technology and talent available to portfolio companies, and trying to plug the companies into the Google ecosystem, value another investor can’t add,” Sanwal said.

Most activity is seed investments, partners at the firm have said. It would appear the unit has rung up gobs of profits — although there’s no way to know exactly how much.

So far the financial arm, whose lone investor is Google, has raised $1.5 billion, according to a Google Ventures spokeswoman. Last year only New Enterprise Associates or Kleiner Perkins Caufield & Byers did more tech deals.
Not content with merely cutting checks, Google Ventures is also finding exits for some investments.
In 2012, Google Ventures saw eight exits for startups it backed, a number that put the company in the top ranks of VC firms, according to research firm PrivCo.
“Google is a big VC firm, no question about it, and it is seeing exits,” said PrivCo chief Sam Hamadeh.

In 2013, the VC arm has made seven investments, according to PrivCo data, a pace that’s on par with Silicon Valley’s biggest investment firms.
The parent company has always been active acquiring companies and was among the top buyers of startups last year. However, its venture investment and acquisition philosophies differ.
“Google acts like a traditional VC,” Sanwal said. “There could be no strategic benefit to the mothership. It is looking for returns.”

That’s not to say Google doesn’t use its investments to survey the tech landscape and use it as a farm league for eventual acquisitions. There was one instance last year, and two overall, where the parent bought a company in which Google Ventures invested.
Google Ventures said yesterday it wasn’t surprised to hear the firm is now among Silicon Valley’s most active. Since its inception in 2009, it has invested in 200 startups, said Jodi Olson, the spokeswoman.
 “The idea isn’t to funnel up company ideas to Google; it’s financial returns,” she said.

gsloane@nypost.com
Source: NewYork Post