2007 VENTURE CAPITAL PREDICTIONS
In the first installment of our mid-year Venture Capital forecast series, our own Doug Anderson sat down with Valhalla Partner’s Scott Frederick to get his take on the VC environment in the DC area and nationally. A general partner with Valhalla, Scott is on the boards of Dataupia Corporation and GetWellNetwork and is a former Director of the Mid-Atlantic Venture Association.
- Technology markets are heating up just in time for summer and tech IPOs are back. In May, there were eleven IPOs in the US – more than any month since October 2004. And 2007 is on track to have more IPOs than any year since 2000.
- Equally important, the average performance of technology IPOs so far this year has been significantly better than non high-tech sectors. Technology companies that went public in 2007 are up an average of almost 14%, while non high-tech companies are up just 6.6%.
- Expect this trend to continue in the second half of the year, paced by several highly anticipated IPOs, including FaceBook, NetSuite, BladeLogic, Netezza and ComScore (which is here in our backyard).
- Despite the resurgence of technology IPOs, expect the vast majority of venture backed companies to find liquidity via M&A. In the first quarter of 2007, 85% of venture backed companies with exits valued at over $200mm were acquired; compared to less than 40% in the frothy days of 1999.
- With corporate cash coffers at all-time highs and the emergence of multi-billion dollar buy-out funds focused on technology markets, expect the number of M&A exits to continue to outpace IPO exits at least 10-to-1 over the next few years.
- In terms of the types of deals that are getting done, digital media is white hot. In May alone, 67 private digital media companies raised almost $500mm in venture capital financing. And during May there were 58 digital media M&A transactions, including AOL’s acquisition of Third Screen Media, CBS’s acquisition of Last.fm and Fox Interactive Media’s acquisition of Photobucket.
- Within the digital media world, there are huge opportunities for companies taking advantage of the advertising potential of user-generated content and the emerging digital cable/IPTV platforms.
- As for the local venture capital market, it is healthy and well positioned on many fronts. In Q1 2007, just over $1 billion dollars of aggregate venture dollars were invested in the Mid-Atlantic region, broadly defined. For historical context, this is almost 2x greater than the dollars invested in Q1 1997. Obviously, it is well short of the more than $5 billion per quarter pace set back in 2000 – but those levels were clearly unsustainable.
- Going forward, the opportunities in digital media should bode well for our region as it is home to a number of world-class content companies (e.g. AOL, Discovery, National Geographic, The Washington Post, and Gannett), as well many innovative advertising infrastructure companies.
- I think the Mid-Atlantic is also poised to capitalize on the return of the telecom infrastructure markets. The Mid-Atlantic was once the darling of telecom infrastructure giving rise to companies like UUNET, Corvis and Ciena. However, these companies suffered with the bursting of the Internet bubble and the resulting bandwidth glut. But as consumer demand for HDTV and Video-on-Demand converge, the bandwidth glut could soon become a bandwidth shortage and new opportunities will arise.
- But at the risk of ending on a cautionary note, paraphrasing Marc Andreessen of Netscape and Opsware fame, trends are generally obvious and there are rarely startup opportunities in the obvious.
June 27, NVTC'S 2007 Hot Ticket Awards Party.
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