If you missed the Berkshire Hathaway Meeting last week, here's Warren Buffet take on Bitcoin: "It's probably rat poison squared." Find 13 more quotes of the Master and more venture capital brain picks in the VC Academy group on Facebook.
Startups are like wine
Pitchbook released their 1Q 2018 Venture Capital Valuations Report that made us think of tech startups as wine: the more mature they become, the more expensive they cost. Here are the main takeaways:
• The most significant valuation increase was at the late stage, where the median pre-money valuation as of the first quarter of 2018 went up to $75 million, which is a 19% increase from 2017. The main reason for this is tons of dry powder we talked about earlier.
• The shift toward funding more mature companies was especially present in the angel & seed stage in Q1. At those stages, the median age for companies receiving financing pushed to three years, which is twice as old as a decade ago. The reason? Lots of alternative funding options such as accelerators, equity or product crowdfunding, and a greater ability to bootstrap.
• The median time between venture rounds remains extended, sitting at 1.4 years for angel & seed and early-stage rounds, an increase from a long-term average of 1.2 years. For late-stage, it sits at about 1.8 years compared to an average of 1.5 years.
• It doesn't seem that VC valuation increases are driven by an increase in investor protections. For instance, the percentage of deals with cumulative dividends — as well as those with participation rights — has fallen steadily over the past decade. Learn more about these terms and their significance to investors and entrepreneurs.
In other news:
- Endowments keep their money in alternative investments regardless of unimpressive performance, or even add to holdings. Last year, alternative investments accounted for an average of 52% of endowment assets, and over 60% in the largest endowments. But besides that, they also back their own entrepreneurship programs to get an early access to future unicorns. As students increasingly pursue startup path, more universities are creating accelerator and incubator programs to support them. Why does it matter? Universities become a stronger source of potential deals. If you're an early-stage investor, make university campuses your priority: become their advisor, hold informal meetings with students, build your network there.
- What is a successful exit? Walmart's acquisition of 77% stake in the Indian e-commerce company Flipkart is the biggest news of the week. Walmart's shareholders aren't very happy about this deal that cost the company $16 billion, because Flipkart is expected to generate meaningful losses for at least the next few years. While Walmart shares were falling as low as 4.2%, some venture investors across the street were opening champagne. Tiger Global Management, a New York-based, low-profile investment firm, made about 3x return. While the firm first invested in Flipkart only $9 million back in 2009 and put total of $1 billion over the years, SoftBank joined the investor pool with roughly $2.5 billion less than a year ago, and its stake is now worth about $4 billion. That'd be a pretty quick good return, if only Softbank didn't have to hand over about $600 million to the Indian taxman out of it due to the steep 40% short-term capital gains tax. Finally, Accel, a Palo Alto based venture capital firm, has been holding on its share for 10 years. The firm invested $800,000 back in 2008 when Flipkart was operating with an 8-person team. (It now employs more than 30,000 people, and it is the largest e-commerce company in India.) Accel invested approximately $160 million over several rounds, and its position in the company is now worth about $1.1 billion. That's a staggering almost 7x return! Lesson learned: be patient and make your term-sheet strong.
Recent Industry Reports And Studies (free instant access):
From the DeLorean and New Coke to the Newton and Google Glass, here's a list of the biggest product flops from corporate giants.