Checking the Pulse of the Venture Capital Industry, Bryan Pearce, E&Y
Fund raising and investments by VCs on pace to meet or exceed 2004 levels
Valuations are continuing upward
And some challenges:
Few VC firms around
Follow-on rounds are increasingly reliant upon "insiders only"
Fund raising environment
New funds are getting somewhat larger - should help sustain follow-on financing
67% of deals are B and late rounds
83% of dollars directed to B and later rounds
shorter length of time between later rounds
Sector allocations relatively unchanged
Majority of funds closed > $100M, sweet spot, $250M to $500M
Products and Services, Energy, Materials getting increased interest
$1M median seed, $5M median A round
Steady climb of valuations, 50% increase in 3 years.
IT investing and product and services firms declined in absolute numbers.
1% companies exited by IPO, 7% M&A, 5% failed-2004 numbers
Amount paid in M&As on pace to surpass 2004. cumulative deal value $23B 2004, 21B 2005 Y2Date
IPOs raising slightly less money prior to going public
Premoney valuations of companies doing IPOs this year is down this year $166m from $224M in 2004
What are we likely to see in the future?
- The focus on capital efficiency will continue
- The better VCs will continue to monitor the "Exit" environment and "reverse engineer" into the amount that can be invested and still earn an acceptable return
- Portfolio companies will become increasingly global at ever-earlier stages in their development
- Some VCs will look at ways to do (more) direct deals in emerging markets including China and India, and to be more proactive in assisting their US/ Domestic Portfolio Companies to better penetrate foreign markets
- The scope of technologies/industry sectors where VCs will invest will broaden to solve the "unmet needs" of the new millennium including energy, advanced materials
- M&A will continue to important in all sectors