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Presentation on the Next Generation of VCs by Prof Ken Morse of the MIT Sloan School

Text of Ken Morse Nextgen Vcs

PowerPoint PresentationPolyTechnos Venture-Partners GmbH
Berlin
and Managing Director
MIT Entrepreneurship Center
We picked these topics based on feedback from current and past students.
Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data.
Product definition b/c we are frequently creating a new product category.
And pricing issues are always complex.
We picked these topics based on feedback from current and past students.
Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data.
Product definition b/c we are frequently creating a new product category.
And pricing issues are always complex.
We picked these topics based on feedback from current and past students.
Market sizing is critical to E-Lab companies b/c product applications are generally new and misunderstood. Lack of data.
Product definition b/c we are frequently creating a new product category.
And pricing issues are always complex.
© 2001 Massachusetts Institute of Technology
Desired Outcomes of this Presentation
Provide a basis for a stimulating discussion
Respond to your questions
End on time, so we can enjoy our luncheon (and networking).
I want to express special thanks to
Jesse Reyes, Venture Economics
John Taylor, NVCA
for their permission to use their excellent data, analysis, and presentations from VentureXpert™, the Venture Capital Institute, and the DRI-WEFA study which were just released in the USA.
© 2001 Massachusetts Institute of Technology
Our Mission & Focus
Current Scene: Trends in Start-ups and VC
Future Outlook
Proposed Outline
MIT Entrepreneurship Center Mission
To train and develop leaders who will make high tech ventures successful
MIT President Charles M. Vest, July 1996
“I want you to be the premier global center for entrepreneurship, and to be recognized as such.”
“We must not only be the best. We must also serve as a model for others and ensure that, together, we all make a significant global impact in this vital field.”
© 2001 Massachusetts Institute of Technology
Why Focus on High Tech?
Continuous creation of new, technology-based enterprises enables great leaps forward.
Rising living standards underpin democracy.
At MIT, we believe our distinctive competence is forging innovations in Science, Engineering, & Management to achieve revolutions, not evolution.
© 2001 Massachusetts Institute of Technology
To Compete Successfully…
“MIT startups must attack global markets.”
To teach global high tech entrepreneurship effectively, we need a network of partners:
© 2001 Massachusetts Institute of Technology
Our Mission & Focus
Current Scene: Trends in Start-ups and VC
Future Outlook
Proposed Outline
The Inevitable Business Cycle
“In times of great commercial prosperity there has been a tendency [toward] over-speculation on several occasions. The success of one project generally produces others of a similar kind. Popular imitativeness will … drag a community too anxious for profits into an abyss …”
- Charles Mackay, 1841
The Impact of US Venture Capital
Venture firms now account for:
7.9 million employees
These figures represent:
Source: DRI-WEFA (analysis as of 8/2001)
© 2001 Massachusetts Institute of Technology
Key Findings - Preliminary
For every dollar invested in 1970-1999, there was $9 in revenue during 2000
For every $21,627 of venture capital investment in 1970-1999, there was one more job in the year 2000
Not bad for an industry which was:
<1.0% in 1970-1995
Source: DRI-WEFA (analysis as of 8/2001)
© 2001 Massachusetts Institute of Technology
The VC Industry has Grown Dramatically in the Past Few Years
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Venture Capital Fundraising Continues at a Strong Pace
Source: VentureXpert™ Database by VE & NVCA
This does not include money available for investment by Corporate Venture groups.
© 2001 Massachusetts Institute of Technology
The US Venture Industry Has Grown
Source: 2000 NVCA Yearbook
How Big is Big in a Venture Fund?
Have VCs Abandoned Seed?
2000 Funds by Size:
© 2001 Massachusetts Institute of Technology
Corporate Venture Capital Groups Have Become Very Involved
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Corporate VC Groups are Involved in more than ¼ of all Deals
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Recent Quarters Portend a Return to Traditional Activity Levels
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
2000 IPOs Edge Out 1999 Record Levels Despite a Bouncy Road
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Acquisitions are an Increasingly Important Exit Strategy
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Why Invest If You Can’t Find the Exit Door?
Source: VentureXpert™ Database by VE & NVCA
IPO Markets are Dormant
These are Increasingly Important
Acquisition Markets Have Slowed Down Too
The “currency” of the average NASDAQ company has lost 50.4% in the past year.
Most acquirers of venture backed companies are publicly-traded high technology companies (often themselves venture backed).
© 2001 Massachusetts Institute of Technology
Average Early and Seed Stage Round Sizes Have Crested
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Venture Capitalists Continue to Fund Early and Seed Stage Companies – Future Pipeline
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
First Venture Rounds into Internet-Related Companies Continue
Source: VentureXpert™ Database by VE & NVCA
Although at a Much-Reduced Level from 2000
© 2001 Massachusetts Institute of Technology
Scaling the Industry:
Growth in VC Principals Has Not Kept Up With Growing Fund Sizes
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Venture Principals are Busier than Ever!
Source: VentureXpert™ Database by VE & NVCA
© 2001 Massachusetts Institute of Technology
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Formed 1969-2000 (quarterly returns)
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Source: Venture Economics
Formed 1969-2000 (quarterly returns)
Five Year Performance Trends
US Venture vs Buyouts
Investment Horizon Returns Net to Investors as of 9/30/2000
Source: Venture Economics
Investment Horizon Returns Net to Investors
as of 12/31/2000
Source: Venture Economics
Companies Receiving First Venture Round (Series A)
During Last Downturn (1/1990-6/1992)
Our Mission & Focus
Current Scene: Trends in Start-ups and VC
Future Outlook
Proposed Outline
Current Scene: B2B = Back to Basics
The Laws of Gravity Were Never Repealed
Entrepreneurs need to have outstanding:
Team
Technology
Entrepreneurs: Building Your Company
Serious Technology – sustainable advantage
YOUR VALUE PROPOSITION MUST BE COMPELLING, QUANTIFIABLE, PROVEABLE, REFERENCEABLE, AND EASILY EXPLAINABLE…
© 2001 Massachusetts Institute of Technology
Our Message to Entrepreneurs:
– Selecting Your Financial Partners
Operating Experience
Deep pockets / courage to stay the course
Keep Realistic Expectations
Time to Market
Entrepreneurs’ Funding: Many Options
Personal Credit Cards and Other Borrowings
Business Angels
Venture Capital
Our Mission & Focus
Current Scene: Trends in Start-ups and VC
Future Outlook
Proposed Outline
The superficial VC gamblers are dying or dead.
A line of bull + .ppt is no longer enough. DAD >> MBBB
The number of MIT spin-offs and $50K teams have not decreased significantly.
Serious entrepreneurs, angels, and VCs are quietly and carefully moving forward.
This is a great time to be starting a company:
Expectations and time horizons are realistic.
Recruiting top talent is easier.
Office space is available, at more reasonable prices.
-40
-20
0
20
40
60
80
Sep-86
Jun-87
Mar-88
Dec-88Sep-89
Jun-90
Mar-91
Dec-91Sep-92
Jun-93
Mar-94
Dec-94Sep-95
Jun-96
Mar-97
Dec-97Sep-98
Jun-99
Mar-00
Dec-00
Quarter
1995199619971998199920001H2001
$0
$20
$40
$60
$80
$100
$120
Funds $250M & Up
Nasdaq
$0
$5,000
$10,000
$ Mil
1,2432,2603,4716,4228,3788,3746,7763,7272,4921317.6
1999-11999-21999-31999-42000-12000-22000-32000-42001-12001-2
-10%
0%
10%
20%
30%
% Incr
5%4%1%-7%-2%-1%0%7%10%13%12%26%30%
1988198919901991199219931994199519961997199819992000
-40
-20
0
20
40
60
80
Sep-86
Jun-87
Mar-88
Dec-88Sep-89
Jun-90
Mar-91
Dec-91Sep-92
Jun-93
Mar-94
Dec-94Sep-95
Jun-96
Mar-97
Dec-97Sep-98
Jun-99
Mar-00
Dec-00
Quarter
% of Deals
1995199619971998199920001H2001
Sample

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