Carey Lai's Corner

A former lemonade stand entrepreneur turned Venture Capitalist

HOW HAS THE LATE STAGE VC LANDSCAPE CHANGED OVER THE YEARS?

changeI like to tell people that I started investing in late stage companies before it was cool.  In 2004, there were only a handful of firms focused on later-stage investing (Focus Ventures, GGV Capital, Meritech Capital, and Scale Venture Partners).  Today, it seems like every early stage firm does later-stage deals or has a separate fund altogether.  No doubt, this increase in later-stage capital is in direct response to a few phenomena:

1)  The path to liquidity (M&A or IPO) takes longer than before
2)  Outsized returns can still be achieved in later rounds
3)  Later-stage returns capital quicker with lower risk

As I mentioned before, it seems as though every firm does later-stage deals or has raised a separate later-stage fund.  Some firms call it later-stage.  Some firms call it growth-equity.  What’s the difference between later-stage and growth equity?  Often, growth equity is differentiated by a larger check and larger company.  For example, a later-stage investment might look like a company with revenues between $1M-$50M and seeking $20M-$30M in financing.  While a growth equity investment might be characterized by a company with revenues between $50M-$150M and seeking $50M-$200M in financing.  Typically, growth equity deals have a secondary component where the founders might seek some liquidity.   Here’s a list of the most recent funds (alphabetically):

Accel (2008):  $480M (later-stage & growth equity)

Andreessen-Horowitz (2010): $650M + $200M side (early & late stage)

August Capital (2009):  $250M (later-stage & growth equity)

Austin Ventures (2008):  $900M (later-stage & growth equity)

General Catalyst (2007):  $220M (later-stage & growth equity)

GGV Capital (2008):  $600M (later-stage)

Greylock Partners (2011):  $1,000 (early & late stage)

Insight Venture Partners (2011):  $1,500 (later-stage & growth equity)

IVP (2010):  $750M (later-stage & growth equity)

Kleiner Perkins (2011):  $1,000M (later-stage & growth equity)

Meritech Capital (2010):  $400M (later-stage)

Norwest Venture Partners (2009):  $1,200M (early stage & growth equity)

Redpoint Ventures Omega (2007):  $250M (later-stage & growth equity)

Scale Venture Partners (2009):  $255M (later-stage)

Sequoia Capital (2008):  $930M (growth equity)

Technology Crossover Ventures (2007):  $3,000 (growth equity)

As you can very well see, the number of firms who invest in later-stage companies has grown tremendously.  Increasingly, the fund sizes have grown as well.  One question that I think I’ll save for another post down the line is how Limited Partners (LP)s react to a handful of funds investing in the same handful of companies except at different prices.  What do I mean?  LPs typically invest in a number of venture firms in order to diversify their exposure.  Let’s say for example an LP invests in 10 venture firms.  Ideally, the LP would prefer that the GPs invest in 10 different companies in order to diversify their risk.  What happens if 5 of the 10 firms invest in the same companies?  In the worst case, all of those companies fail?  In the best case, all of those companies succeed.

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This entry was posted on April 20, 2011 by in Uncategorized.
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