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A little bit about me

Hi. While this blog is a part of Seed Catalyst’s website, I realised over the initial few weeks that a lot of you are first introduced to the firm via the blog rather than our home page.

So to introduce myself - I’m a business consultant working with early stage technology firms to help streamline their strategy and go-to-market approach and support them for fund raising. 

With this blog, I aim to capture key market trends that I see in the industry, the ecosystem and cross-plays in some of the more interesting and upcoming sectors, as well as cover interesting companies that I meet. 

I will also be addressing vexing and interesting valuation and deal/term-sheet structures that would be of interest to technology start-ups at various stages of their growth.

So let’s get started...

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New money versus old PDF Print E-mail
Blog - New money
Thursday, 07 October 2010 14:17


If we didn’t know it already, here’s some researched data confirming the views:

  •   Exit activity is rising for VC backed companies
  •   Fund raising activity has significantly slowed down since its heydays of 2006-2008
  •   It’s taking way longer to close a fund as compared to the heydays

 

EXIT ACTIVITY

On exit activity, in Q3 2010:

  •   There were 102 M&A exits worth $5.7B compared to 97 exits worth $3.3B last year
  •   9 companies raised $723 million through IPOs ($451 million last year)

 

A snapshot of the change in the trend of exits over the last three years. Trade sales and secondary buy-outs are leading the pack as amply demonstrated in the news of the last few months.

 

 

FUND RAISING ACTIVITY

On the new funds front, globally the PE industry raised $57 billion in Q3 ’10 up 16% from $49 billion of the previous quarter (Source: Preqin)


China, India and Brazil may be the flavour of the season but US focused funds have seen maximum inflows with 37 funds totalling $41B. Europe, surprisingly enough, was second at 21 funds worth $8.3B. Asia and the rest of the world saw 23 funds aggregating $7.8B. This can perhaps be explained by the fact that of all the new funds approximately five were distressed PE funds worth $9B and another 19 were real estate focused funds with commitments of $8.8B. Three infrastructure funds raised $8.3B.

 

Venture capital funds have been trailing a long way behind at 20 funds worth $3.7B. Buyout funds were stronger with 11 funds raising $20.4B.

 

TIME TAKEN FOR NEW FUND

As for the patience required for the raising of a new fund – there are currently 1550 funds seeking to raise $573B wordwide! And it’s taking almost 20 months to raise a fund, double the average time of 2004.

 


In conclusion, if market sentiment is to be believed I think we are finally past the trough and 2011 should bring happier tidings in terms of new money in the buyout as well as the venture capital industry. However I don't think market up-tick is the only reason for an optimistic opinion. I would tend to think it's more the first point of our discussion i.e. exits. As investments are exited and the money is returned back to investment managers, it does need to be reinvested to maintain allocations.

The question which will then arise is – which are the funds that will see higher inflows. Just a sample of fund returns based on size:

 


The small and mid-size funds seem clear winners.

 

Afterthought - Venture capital has taken a huge hit in IRR over the last decade and is of course seeing a bit of redefinition with angels raising $50-100 million funds focused on the seed stage and traditional VCs aiming for more risk-averse validated investments. However that data can be cut as much by stage of investment as by industry i.e. angels focused on internet and digital media and traditional VCs investing in software, semicon and such like. In any case that perhaps is one industry which is seeing a more fundamental restructuring - multiple types of funds under one VC umbrella.


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