We are in a new venture economic cycle in 2016

We are in a new venture economic cycle in 2016

At Rubicon Venture Capital we believe 2016 is already a new and different economic cycle from 2015 and 2014 for startups and VCs trying to agree on appropriate valuations and size of financings. The venture economy ebbs and flows much like the public markets, but not as tightly in tune as logic might suggest. Startup CEOs have their own idea of what their valuations should be and how much capital they should raise and how often. Venture capitalists have their own ideas on the same topics and deals get done when both sides agree. Our take is that the venture world has been in an upward boom in recent years and peaked in August of 2015. There was a “Chinese chill” in August followed by a controlled “hitting of the breaks” without skid marks in September, October, November and December. What has happened with venture is a mild market correction; however, not all entrepreneurs or VCs have gotten the news yet. As we all know 2016 began with a hammering of the global public equity markets. Some of our companies already restructured in 2015 cooling burn rates and recapping their companies at more humble valuations raising funding when they didn’t need it. Funding has become more of a continuous process than big forklift monumental “series” financings. Now many mid to late stage companies are lowering expenses, lowering growth expectations, raising more capital ahead of schedule and adopting new operating plans to sail through potential rough waters that may be ahead. What does this mean for Rubicon? Lower valuations for us to invest in. Ability to drag startups through more...
Videos from VC / Angel Investor Workshop @ Silicon Valley Innovation Center

Videos from VC / Angel Investor Workshop @ Silicon Valley Innovation Center

Videos from VC / Angel Investor Workshop @ Silicon Valley Innovation Center Click here to go to Andrew Romans’ YouTube Channel and view the videos. (Read the notes of each video to fast forward through the first 10.5 minutes of Part I. I need more time to break these into shorter videos; so feel free to skip around.) Topics covered Overview & analysis of the market from Pre-Seed, to Seed, Later Stage Seed / Seed Extension, Series, A, B, C, D to the private IPO phenomenon – understanding trends – which are crowded, overpriced, underpriced and key risk points Why investing now is more attractive than ever before What industries, sectors, company stage and geographies are best for you Convertible notes – key points and the meaning beyond the moving parts Priced equity rounds – key points and the meaning beyond the moving parts Valuation concepts on pricing valuations when investing, exiting and risk tied to perceived exit multiples Portfolio construction strategies for angels and VCs – how to allocate your capital Best practices for sourcing deal flow and conducting due diligence Tactics to get into oversubscribed deals Strategies for continuing to invest in portfolio companies a 2nd, 3rd, 4th, 5th time, etc Best practices for post investment information rights, governance, adding value and Different options to invest ranging from Angel List, to other investor platforms, angel groups, demo days, accelerators, VC funds, SPVs, tax breaks for UK, EU and Israeli taxy payers Different options to get liquidity on the secondary market before definitive liquidity event for startup / how to sell some stock before the final exit Questions & Answers from an audience of...
The “carve out” is another tool in the toolbox of both the founder / hired CEO and VC

The “carve out” is another tool in the toolbox of both the founder / hired CEO and VC

I had a meeting last night with an entrepreneur and old friend of mine visiting Silicon Valley from Tel Aviv in my San Francisco office and then we went 1:1 afterwards (without my Rubicon team) for a drink. I was keen to learn about the opportunity to invest in his new startup, but I also wanted to hear how my previous investment I made 7 years earlier into his last startup would work out for both him and me. His last startup (I will not name names in this post) is an Israeli company backed by Pitango, Carmel and other leading VCs from Israel. The two co-founders left the company about 18 months ago after nearly 10 years of building up this first startup. Both now have new tech companies we’re looking at potentially investing in. The previous company continues to grow revs with solid profit margins, but has failed to scale to the level we had all initially hoped for, but is still a valuable asset. They have a meaningful liquidation stack of over $40m total that needs to be paid off to the VCs and bond holders before the founders’ common shares (founder stock) would receive any consideration from the exit. This means that it is possible that their previous company where they raised over $40m of VC funding might be sold for less than the $40m invested. They have a 1x liquidation preference they need to pay the VCs back and a few million dollars venture debt that gets paid out before the VCs. So the waterfall of liquidation preferences looks like this: 1) venture debt, 2) VCs,...
Where are the Best Risk / Reward Valuations in Venture Capital Today?

Where are the Best Risk / Reward Valuations in Venture Capital Today?

The venture capital market is constantly changing with supply / demand dynamics fluctuating from one geography to another, sector-to-sector and weekly shifts in micro and macro economic confidence. Here’s my current perspective on the differences among 1) Seed, 2) Series A & B and 3) Later Stage Growth financings. Key take-aways: 1) Seed is over priced where startup valuations are higher than these companies can be sold for today – investors betting on the future potential – increasingly easy for all investors to access seed financings 2) Series A & B rounds are priced lower than the company could be sold for today – optimal risk / reward inflection point – difficult for most investor to access these financings 3) Later stage growth values the company higher than it could IPO or be sold for today but build in protections for newest investors – very hard for average investor to access yet increasingly crowded Seed market has become crowded and valuations are higher than you could sell the company for today The seed market had transformed from a small set of angel and seed stage institutional investors accessing elite deal flow via personal relationships and networks to a new world of a larger number of active angels funding a bigger pool of non-elite seed stage deals. We now have more entrepreneurship than ever before with thousands of seed stage deals augmented by thousands of accelerators each churning out constant cohorts of startup batches continuously where any angel or seed stage investor can attend demo days and get introduced to the founders for direct investments. The number of players in seed is growing quickly...
When to Quit Your Startup vs Never Give Up!

When to Quit Your Startup vs Never Give Up!

About 13 years ago I attended a party in London with the theme “Never Give Up!” It was organized by an angel investor buddy of mine from the Silicon Valley who is a true round-the-world ticket traveler with entrepreneur networks everywhere. It was a bunch of entrepreneurs that got together on a Saturday night to get loaded, share their challenges and motivate each other to “never give up” with their startups regardless of hard times. It was a big party and I don’t remember meeting any entrepreneurs that I thought were “VC fundable” that night. I had a good time, but I recall saying to my wife as we walked out of there that those entrepreneurs are more serial killers than serial entrepreneurs. I think it is an important thing for founders and junior cofounders to consider when it is the right time to give up, quit that startup and move on. Most startups fail, because they run out of cash. When the startup is generating cash from customers or investors it becomes more complex for the founder to lift her head up from the ball and look at the entire playing field and think. I live in the Silicon Valley and commute most days to our office in San Francisco and I think that being at the very far west end of western civilization means that most of us are separated from our parents and family. Being far away from these conservative forces like your Jewish mother telling you to quit that startup and take a job at an accounting firm like your brother is part of the secrete...