ELIAN D. ALVAREZ

- VENTURE CAPITAL - ANGEL INVESTMENT -
- ENTREPRENEURSHIP - LATAM - INNOVATION -
- INVESTMENTS - PRIVATE EQUITY - FINANCE -

Venture Capital Ecosystem – Now

Aug
17

The current Venture Capital ecosystem has begun to revive and experienced growth in the last two-quarters. Let’s take a look at the situation of the venture capital ecosystem to evaluate the liquidity and investment position in the market.

 

Overview

In the first and second quarter of 2017, VC sector continued to grow despite the rolling financial market in China, Euro crisis, UK’s exit from the EU, controversial election in the U.S. and obstructed technology IPO market. Although, new uncertainties have surfaced, investors have learned to adapt and adjust. Whereas, the profits made in the first quarter further increased in the second quarter.

 

Funding Activity at a Global Level

The number of deals around the world has also increased. Equity funding rounds in the second quarter of this year increased by 5.7% as compared to the first quarter, adding about 300 rounds. This change took place as a result of angel investment and seed stage investment.

If you compare it with the second quarter of 2016, the overall growth in the funding rounds was about 8.8%, which came about as a result of early stage firms.

 

Dollar Volume

According to a report by CrunchBase, the overall investment increased by 16% in dollar terms, which is an increase of about $6.6 billion in the deployed capital. There was a fair distribution of gain. Late stage startups, early stage startups, startups at the seed stage and angels received about 20% funding in the current quarter as compared to the previous one. The only thing that faced a downturn was a technology growth rounds.

However, the global VC market is not yet restored. In the second quarter of last year, the total investment amount was $51.5 billion, but this year it was $47,8 billion, i.e., 7.2% less than the previous year. On the other hand, technology and seed sector experienced growth by 10.75% and 16.5% respectively.

 

Leading Investors

In a CrunchBase report, a total of 3200 VC rounds was analyzed during the second quarter of this year. During the first quarter, it was Tencent Holdings, Sequoia Capital and Accel Partners that secured the first position, wherein, each had a total of 9 rounds. In the current quarter, however, Tencent led 11 rounds, whereas, Sequoia and Accel led 14 and 20 rounds respectively.

In this quarter, some newcomers were also in the leading position, including Samsara, Grammarly, and General Catalyst. SoftBank also formed part of this list in the second quarter of 2017 along with True Ventures. Some firms dropped down from a leading position, while other newcomers made it to the top.

 

Technology Growth

Growth capital in the technology sector is also known as a growth equity in the business. Technology growth rounds have been defined as private equity rounds in the CrunchBase report. In these rounds, some VC investors from the previous rounds also participated as a continuation.

The dollar and deal volume also increased in this quarter compared with a volume of the same period last year. The overall increase was about 32%. The increase in dollar volume was of $160 million. Although, the deals in the current quarter were two times more than the deals in the previous quarter, the total value of funds was 45% less than the last quarter. This downfall represents the decline in round sizes over time.

 

Initial Public Offerings

The second quarter of 2017 experienced a small increase in the technology initial public offerings (IPOs), both in the United States and the Europe. This toned down the speculative noise that IPO window was closed for everyone except the big firms.

No significant regulatory filings or announcements were made in the third quarter of this year. Redfin, a real estate brokerage, filed documents with the Security and Exchange Commission, showing its interest to raise $100 million. And so far, it has managed to raise over $167 million from investors like Tiger Global Management, Draper Fisher Jurvetson, and others.

 

Although, the global VC market experienced a severe decline at the end of last year, the second quarter of 2017 was relatively better. Growth was observed in the dollar and deal volume for two-quarters back to back. Rounds are also experiencing growth; some venture capitalists doubled the bet on their investing activities. If the upward trend continues, the third quarter will bring the market back to normal after full recovery.

Why Venture Capitals should back companies with female founders?

Aug
03

Although, venture capital has invested a huge amount of money in the IT sector and contributed to innovative developments, yet, it still faces the same gender equality problems as any other sector does. A study by the Babson College examined the state of women in the venture capital sector. Around 7000 companies that got venture capital (VC) funding were evaluated.

According to the study, the percentage of women partners in VC firms was 10 percent in 1999, but it has reduced to only 6 percent now and venture backed companies that have female founders make 12 percent more revenue than companies with male owners. Despite that, only 2.7 percent of the companies fueled by venture capital had female chief executive officers between 2011 and 2013. Whereas, according to a 2014 research report of the Fortune, only 4.2 percent of the partners are women in the VC sector.

 

Issues Faced by Women in the IT Sector

Women in the IT sector have initiated a number of campaigns that are based on ‘asking for more’, especially when it comes to STEM (Science, Technology, Engineering, Mathematics) education, fair policies, mentors, pay raise, and salaries. Moreover, women have also come forward with the hardships that include unfair salary negotiation and maternity leave policies and gender bias.

These issues have led to many campaigns, conferences, and summits. However, despite all these stories of hardship and inequality, no change has come. A clear example of this is a when Ellen Pao lost her case in 2015 for gender discrimination. She claimed to have been left out of networking events because she was a female and was not promoted to be a partner while her male colleagues were promoted ahead of her.

A partner at Canaan Partners, John Balen, said that the male dominating culture begins right from the school and there should be a conscious effort to break that cycle. Candy Brush who carried out the Babson College study is of the opinion that a journey toward becoming a venture capitalist starts from your college and professional network. If 2.7 percent of the firms have females at the executive position and 15 percent of the venture-backed companies have one female on their team, it represents the small possibility of it happening.

 

Macro Factors – The Cause of Decline in Female VC Partners?

As discussed, the percentage of female partners in VC firms have reduced from 10 percent to 6 percent since 1999. Macro factors, including a dot com bubble burst of 2000 and credit crunch of 2008 have also contributed to the decline. VC companies had to go for downsizing during those downturns. The majority of the firms were not so big; they had to lay off on the basis of “last in, first out” – minorities and females in this case.

Another macro factor was the rising popularity of the technology market during the past two decades, especially after Facebook and Google. Having a technological edge was what mattered the most. Although, there has been a shift in this attitude, yet, there are so many investors who still want a technical partner in their team.

The founder of Brooklyn Bridge Ventures, Charlie O’Donnell, said that there are only a few females who are software engineers, therefore, it automatically leads a firm to hire more male partners.

 

Can Gender Equality Lead to Business Opportunity?

The managing directors and co-founders of the Women’s Venture Capital Fund, Monica Dodi and Edith Dorsen, once had a rendezvous with finance and investment professionals to talk about the more risk-intelligent approach in the VC sector. Their fund is the outcome of that meeting. Dorsen was of the opinion that the purpose of initiating this fund was to explore the untouched opportunity with female founders as a focal point. She further went on to say that firms with gender inclusive teams tend to perform better and are very competitive, but not everyone fully understands it so as to generate return out of it.

In a research carried out by Babson college, it was revealed that companies with females in the executive team are 64 percent more likely to have better valuations after the first funding and 50 percent chance to perform better at the last funding.

The founder of the Female Founders Fund, Anu Duggal, said that she visits the Silicon Valley four times a year to interact with partners of the top venture capital funds. She has observed a shift in attitude with a positive change. If the current trend continues, the VC sector and technology market might experience a major shift and massive success in times to come as it moves in the direction of gender equality.

The Key for Venture Capitalists Better Performance

Jul
20

Venture capital is a booming sector in developed economies. With the increasing trend in venture capital investments, a lot of research work is being carried out for its growth and continuous developments. Recently, a working paper has been posted on the National Bureau of Economic Research by professor Paul Gompers from Harvard University and a Ph.D. student Sophie Wang.

 

Greater Gender Diversity

According to the paper, if a venture capital (VC) firm hires a partner who has daughters, it is more likely to perform better as compared to other VC firms. But it does not mean that a girl totally understands what’s hot in the investment market and what’s not. Gompers and Wang conducted a study of large venture capital companies between a period of 1990 and 2016. They observed that the partners of the firms with higher gender diversity have, on average, more daughters. During the period of their study, it was revealed that VC firms with higher gender diversity have shown better performance as compared to firms with partners that do not have daughters.

The study also revealed that raising daughters decrease the element of biases toward women and it eventually leads to hiring more female staff. Researchers noted that firm partners who had daughters that were above 12 years of age had instilled a culture of higher gender diversity. They said that it goes hand in hand with fathers experiencing a likely gender bias faced by their daughters as they grow up.

 

Having a Daughter – A Step Toward Successful Deals?

72 percent of the venture capital companies do not have any female investors, therefore, the effect of having a daughter should be considered. The study conducted by Gompers and Wang comprised of 998 firms with 1400 investing partners. They employed a mathematical model and concluded that if each partner of VC firms had a daughter instead of a son, the firm would have experienced successful deals with a growth of 31.6 percent on return on capital employed than an average growth of 28.7 percent.

These calculations were based on reasons, such as, generation of better ideas in a diverse working environment or the opening of new avenues to access better deals.

 

The significance of “Having a Daughter” Effect

It is not astonishing, however, that by replacing a female child with a male child, the chances of hiring a female investor increases by 24 percent for VC companies. According to the study, 8 percent recruitments in the past 15 years were female and an increase of 24 percent would only represent a ratio of 10 percent in the VC sector.

The ratio of daughters in the VC sector is not so low. It represents a ratio of about 125 male children for 114 female children. This is consistent with the national demographic figure of 51 percent boys. It indicates that apart from an artificial genetic selection, the argument of daughters having an impact on the VC sector does not seem to be strong.

It has been acknowledged by researchers, because the basis of this view is mainly to eliminate the gender bias and also to emphasize its importance for the prospects of the venture capital market. Those who seek to have gender equality in the VC market can rely on the gradual change that has taken place in the sector over the years.

 

A Move Toward Gender Equality

In 2014, a financial market where venture capitalists operate, women represent 54 percent of the labor force, wherein, 18.3 percent of the women are board of directors and 12.4 percent are executive officers. A managing director and co-founder of the Women’s Venture Capital Fund, Edith Dorsen, is of the opinion that teams with greater gender diversity are more competitive in the market and companies with such teams have higher chances of financial growth. The majority of the people have, so far, not been able to fully understand that it is a real opportunity to earn high profits.

Anu Duggal, a founder of VC fund called F Cubed, started her firm in 2013 and the main purpose behind it was to change the common perception. She is building a network of support that comprises both men and women. This network will be focused on finding the most innovative ideas and entrepreneurs.

Evolution of the Venture Capital Sector

Jul
06

Venture capital (VC) industry is highly volatile. It is constantly evolving and has undergone massive changes in the past ten years due to the growth of the software sector. The shift toward the IT industry will continue to persist until one of the two situations occur:

  • Either the software market starts experiencing saturation as a result of huge inflow of money in the industry or
  • There is a manifestation of a new industry that shows higher profits, hence catching the attention of investors.

There are some analysts in the financial sector who are also anticipating another bubble bust that will be similar to the dotcom bubble in the 90s.

 

Rise and Fall in the VC Sector During the Past 5 Years

In 2015, VC investment around the globe experienced a growth of 19 percent. The total funding was between $128.5 billion and $130 billion, which has been the highest in the last 5 years. However, the investment continued to grow in the U.S. from $58.8 billion in 2015 to $69.1 billion in 2016.

As far as the rise of unicorn companies on a global level is concerned, it gradually declined after 2015 when the total number of startups that reached unicorn status were 71. The number reduced to 40 in 2016. On the other hand, a decline was also observed in seed funding as it dropped by 25 percent and touched the lowest point since 2012. The late and early stage investments also went down by 14 percent and 5 percent respectively.

 

Opportunities for VC Investors

Although, a large number of high profile investors pursue seed stage deals, they usually have sufficient funds to invest in the most attractive startup companies, which has subsequently strengthened Series A and Series B rounds.

Moreover, seed stage investments performed really well in 2014 and 2015, indicating the fact that investors who made those investments will be continuing in 2017. It will give rise to a great opportunity for investors who are seeking to make an investment at a later stage.

The momentum in the IPO will also increase, because the public sector tends to grow when valuations in the private sector are higher. It is quite likely that the IPO market backed by VC investors will outperform in 2017 as compared to 2016. For example, it has been reported that Snap Inc. is expected to offer its share at about $20 billion. If the offer materializes, it will be one of the largest VC backed IPO deal. In addition to that, Spotify, Pinterest, Dropbox and Uber are some of the names creating buzz in the IPO sector.

 

Rising Trends and Acquisitions

Artificial intelligence (AI) and machine learning have grabbed a lot of attention between 2015 and 2016, and they are likely to secure more investment in 2017 as well. There were more than 300 businesses that managed to raise early and seed stage funding in 2016, yet, approximately dozen secure funds at a later stage.

Moreover, a number of healthy acquisitions have also taken place recently. The examples include the acquisition of Movidius by Intel for $350 million and acquisition of virtual assistant developer Viv by Samsung.

 

Economics and Investors’ Behavior

There is a major role play of economics when it comes to VC investments. Since economics follow a cyclical pattern, it is highly likely that history will not be repeated nor will the unpredictable happen. Also, economics involves study of human behavior that contains an element of irrationality. This element enables us to anticipate the shifts in behavior of VC investors only to an extent of its repetition and history, but it cannot be predicted with full certainty.

VC investments change with the passage of time. As the inflow of funds increases in the software sector, it gives rise to increasing competition in the market, which eventually reduce the overall returns as several firms compete to maintain a customer base. It might also cause a shift in venture capitalist behavior in times to come if other sectors seem more viable.

 

All in all, the justification of a VC investors’ behavior can be summed up by saying that venture capitalists tend to go in a direction where the money flows.

Rising Trends in the Venture Capital Industry

Jun
27

Today, the most successful companies in the world, such as Snapchat, Xiaomi, Uber, or SpaceX have been funded by  venture capital (VC) investors. The venture capital funding pattern has changed and gained popularity in different countries over the years.

In 2015, the VC market around the world consisted of $128.5 billion, wherein, 71 VC backed companies managed to reach a unicorn status along with a total of 7872 deals made.

 

Industries that Receive the Most VC Funding

According to a 2016 report by Martin Prosperity Institute, VC funding is available across different industries. In the U.S., software sector has around 36 percent of the VC investment with a value of about $12 billion, whereas, bio-technology and media and entertainment comprise 17.3% and 9.5% respectively. The top five industries consist of $25 billion investment constituting 76% of all VC investments.

Software sector received the highest funding even in the last quarter of 2015, i.e, $4.5 billion with 369 closed deals. On the other hand, bio-technology collected $1.5 billion via 95 deals and media & entertainment sector managed to secure $881 million by closing 114 deals.

 

VC Funding Trends

Venture capitalists invest in different stages of a business. According to a 2017 report by Crunchbase, the average seed funding in the first quarter of 2017 was approximately 38% higher than 2016’s first quarter funding, which shows that a number of investors are ready and excited to invest in new startups. These investors are basically accelerator programs that offer funding to newbies showing strong potential to grow in the future.

 

Major Cities for Venture Capital Investments

In another report by Martin Prosperity, it is stated that industry wise VC investments are also confined to small geographical locations. For example, half of the VC investments in software sector have taken place in San Francisco, representing 25% of the investments, whereas, San Jose represents 20%.

In the US, the flow of VC investments mainly comes from Boston – New York – Washington corridor and San Francisco Bay Area, representing 40% of all the VC investments around the world.  In 2012, a total of $42 billion worth of VC investment was recorded worldwide. The data included 150 cities and the center point was the U.S. that accounted for 70% of the global investment, whereas, Europe and Asia only represented 14% investment.

 

Popular Sectors for VC Investments

Some of the popular sectors that have received a large percentage of investment are advertising, big data, cloud computing, SaaS, marketplaces, hardware and software.

 

Advertising – Although, it has been a center of attention for many years, but in the past 5 years, it has lost its position and the investment has decreased from 15% to only 5%. Advertising business models are gradually losing their value in the eyes of investors. One of the key reasons behind it is the heavy influence of advertising networks, including Google and Facebook.

Big data – Business models, in which the driving factor is big data, have experienced a growth in VC investment. In 2010, the series A funding comprised of 2.5% investment, but by 2015, the funding rose to 7.5%. On the other hand, seed investment has not shown any improvement or decline over a period of last 4 years.

Cloud computing – It is an infrastructure used by product developers to create services. In the last 4 years, this particular business model has also remained the same, i.e., 4%, in both series A funding and seed investments. However, it slightly went downward back in 2013 to 2014.

E-commerce – Although, e-commerce has been one of the well-known business models in terms of VC investments, yet, the seed stage investment suffered a decline from 15% to well below 10% and series A remained the same.

SaaS – In case of SaaS, series A investors didn’t perform as good as seed investors. Series A increased from 5% to 10%, whereas, seed stage experienced a surge from 5% to 15%. This sector shows attractive prospects for funding as merely less than 2% of the software market shifted to SaaS.

Marketplace – This sector experienced a surge in seed funding from 2.5% to 10% in the last four years. Uber and AirBnB are the reason behind its massive success. The current growth rate has motivated investors to consider it a potential sector for investment. Series A investment, however, remained at 5% of the dollar amount.

 

All in all, it is quite evident that VC investment has become one of the key sources of finance for many successful businesses and is currently dominating the world’s market at a rapid pace.

What do Venture Capitalists Look for in a Startup?

May
26

Billions of dollars are invested in new startups every year. Therefore, it has become even more important to find the answer to the following question: what do venture capitalists want?

A venture capital firm called Draper Fisher Jurvetson (DFJ Venture Capital) that has injected funds in around 2 dozen unicorns, including Twitter, Tumblr, Skype, and Box. One of its partners, Steve Jurvetson, shared his views on what he looks for in a startup when he plans to make an investment

 

Enthusiastic Founder

Jurvetson said that the first thing he notices is how enthusiastic the owner of a startup is – someone like Elon Musk who can convince that their idea will work. However, he added that it has to be in a sector which will contribute to the rapid growth of an economy during the times of huge disruptive change.

 

Innovation

In today’s rapidly changing world, innovation is a key to success. Products, such as electric cars, rockets, synthetic biology, etc., have proven to be the game changers in the IT sector. They never managed to attract venture capital in the past decades, but are high in demand nowadays. These industries have undergone massive change in the past few years, which is good for startups.

Investing in anything that takes an investor out of his comfort zone is worth it, because it leads to those crazy ideas that can change the world. However, it should be noted that it is those successful ideas that were never considered good in the beginning.

Jurvetson said that if an idea is strongly supported by a few number of people who believe it to be the future of the world, but the majority is against it, then it is a good sign.

 

Respect for the Team rather than Individual

Another factor he looks for is a founder who has respect for the team rather than individuals at work, a trait that contradicts the cult of a one man (in this case, a CEO) running the show. Having the self-confidence to stay humble about the proposals made and respecting the team are some of the additional attributes of a good startup owner.

 

What Sectors to Invest?

When talking about what sectors should venture capitalists invest in, Jurvetson hinted to Moore’s law as to how it’s penetrating into different sectors and turning lousy, low margin businesses into innovative software based businesses. Tesla is a great example that changed the course of different industries. Its contribution in the Planet labs, SpaceX, or automobile industry is a prominent example of the transitions made.

It took decades for these sectors to see entrants who transformed these industries through product enhancement. A number of investments failed during the process, yet, they are all IT based now and have gone through a massive transformation. Innovation has brought so many changes in the IT sector. For example, application of machine learning was considered a geeky subject a few years ago and only a few people at Google and other companies that worked on image recognition were familiar with the concept. But these techniques will now be widely recognized in every industry as they represent a new way of doing engineering.

 

A Way Forward

Remember, it is a two-way street. The world will experience the breakthroughs only if big companies welcome the evolution of technology. Jurvetson said that large companies that embraced innovation were the most exciting ones. A good example of this is Apple and its achievements over the years. Most of the large companies do not welcome meaningful innovations, which represent a connotation of disruption to depict the change. Embracing the change doesn’t mean a mere 10 percent improvement in processes, it shows a wow factor, such as freeing the automobile sector from gasoline consumption.

Similarly, back in the days, going to space was considered a tough job. Only a fighter pilot could qualify for a space mission with lots of training. But it is not going to be the same in future. SpaceX will soon launch a robot spacecraft where an astronaut will sit back and take a ride on the spacecraft. If the company is successful in doing that, space flights will become as frequent as air flights providing the same level of safety and fun.

Therefore, for a new idea to be successful, investors will have to support the change and big companies should embrace it. Not only will it be beneficial for a global economy, but will also make room for game-changing breakthroughs.

Startups Worthy of Investment … or not

May
11

It seems like those days are long gone when venture capitalists used SPRAY and PRAY strategy in the hope that one of the startups in the entire portfolio would make it big.

In other words, it is about time that startup companies show their ability that they are worthy of the venture capital (VC) funds.

 

Decline in the Number of VC Funded Companies

The PitchBook released the first quarter of the 2017 issue in collaboration with the National Venture Capital Association (NVCA). The statistics presented in that report were based on the thorough analysis of VC activity in the United States. According to that report, $16.5 billion was raised by 1800 companies alone. PitchBook and NVCA also observed that even though the amount of investment in the Q1 of 2017 was a bit higher than the capital invested in the fourth quarter of 2016, the number of startups has dramatically decreased to its lowest level since the fourth quarter of 2011.

 

VC Investors and Entrepreneurs Exercising Caution

It looks like the VC sector is facing a gradual decline after experiencing effervescent days of glory back in 2015.

John Gabbert, the CEO of PitchBook, said that during the past few years, the VC activity managed to attain intensified growth in the United States and now it seems to be coming back to earth. He further added that it feels like startup founders and investors have started following a more disciplined approach to investing the funds and taking reasonable caution by adopting measures, such as due diligence. These activities are carried out to secure fair deals on both sides so that each party gets something good out of it.

Ernst & Young, a London based auditing firm, reported that companies in the United States raised about 41.3 billion dollars in 2,802 VC deals in the third quarter of 2016. The San Franciso Bay area represented a total of 916 deals having a value of 16.9 billion dollars.

Jeffrey Grabow, the leader of VC in the U.S. based Ernst & Young, said that VC funding has slowed down and there are various reasons for the declining trend. The prominent reason, however, is the fact that investors want the market to absorb the already distributed capital in the market. Momentum capital has reached a later stage of VC funding and injected capital in almost every that was available in the market. Therefore, it is about time to see how it all turns out.

 

Comparison of the Number of Exits

In spite of the huge funding to a limited number of IT companies, a lot of companies fueled by $9.05 billion worth of venture capital took an exit in the first quarter of 2017. This exceeds the combined value of the IT companies’ exits in 2006, 2008 and 2009. The situation is relatively close to how it was back in 2007. If the same trend and immensity of initial public offerings and acquisitions follow, 2017 will either reach the same figure of 2014, i.e., 39.74 billion dollars, or might exceed it. Only time can tell what is to come next, but it continues to happen at the same pace, it would probably exceed the value of 2014.

IT firms around the world continue to leave behind all other kinds of businesses that are funded by venture capital. According to the NVCA and PitchBook report, Initial Public Offering of Snap and acquisition of AppDynamics by Cisco has been ranked among the top 10 biggest exits of their types during the past 10 years.

 

Investments in VC Activity

California has left behind all other states in the United States in terms of the number and value of VC investments. A total of 560 investments was made in 556 companies, which were worth 8.3 billion dollars. As far as the number of investments was concerned, New York was ranked second with a total of 218 investments. Whereas, Massachusetts was in the second position in terms of investment value as it was slightly higher than 2 billion dollars. Although, there may be a rising trend in the remote work among startup companies, yet, the concentration of venture capital is still high in the Silicon Valley.

Gender Balance in Venture Capital

May
04

Venture Capital has been in existence for a very long time.

However, the sector has experienced growth and massively evolved during the past two decades. From Facebook to Google, organizations supported by venture capital firms have contributed a lot to the economy. Although the industry is still young as compared to other sectors, one in every five public companies in the United States uses this mode of financing. It is basically used by innovative minds that are high risk takers. Not only do venture capital firms provide funds, but also offer network access, strategic guidance, mentorship, etc.

However, despite the continuous growth, the industry still faces a huge gap between genders as men are leading the venture capital market. In other words, the more it changes, the more it stays the same, especially after analyzing the demographics based on gender.

 

Gender-wise Statistics of the Venture Capital Market

According to a survey, the percentage of women as decision makers in the U.S. based venture capital firms is 7 percent and they control only 4.7 percent of the venture capital (VC) invested in the market during the past five years. Moreover, out of 1,019 professionals who take strategic decisions in 227 VC firms in America, the number of females was just 72. Furthermore, 169 of these firms had no females at a strategic level. These firms managed to raise about $153 Billion within a period of four years from 2012 till 2016, and only $9.51 billion of it was controlled by women.

 

Development Over the Year

Another analysis was conducted last year on sample years between 2011 and 2015. According to that analysis, the percentage of female decision makers was just 5.7 percent in the U.S. based VC firms. It shows an increase in the overall number of women in the industry, representing a 17.7 percent increase in female decision makers at a strategic level.

 

More Investment in Companies with Male Executives

Furthermore, when it comes to which firm gets the venture capital, male majority takes the lead. According to the CB Insights, organizations with men in executive positions receive 98 percent of the venture investments, which is about $1.88 billion.

All in all, there is a need for a lot to be done especially for women in the VC industry. Megan Quinn, a growth investor at Spark Capital, said that every individual has a role to play in this industry, whether it is an entrepreneur, press, or existing VC firm, and she doesn’t agree with the notion that there are not enough qualified women to be in this sector. A small percentage of women depicts the issue of gender inequality in the VC sector and also in the world of technology.

 

Why Lack of Women in VC Persist?

Ann Miura-Ko, a partner at Floodgate, also share the same thoughts as Quinn’s. She said that there was a time when most of the small firms had female decision makers and firms experienced a small increase in applications from women. She further stated that women feel welcome in places where there are more female colleagues as they usually question whether they can fit into male-dominated organizations or not.

The managing partner of New Enterprise Associates (NEA), Scott Sandell, talked about the reason why the VC firms around the world don’t usually have female partners. He pointed out the fact that some women simply leave the place for personal reasons. He also said that people working at a strategic level are usually promoted from within a firm. They make their way up from an associate level all the way to the top. However, he admits the fact that although there is no conscious bias against women, there is probably an element of unconscious bias, which is represented in the form of a small number of females at a strategic level. NEA is currently holding trainings to remove any sort of unconscious bias that may occur in the VC firms. He further added that this issue can easily be resolved and it has a tendency to sort itself out, but it does require attention.

 

Today, women constitute more than 50 percent of the consumers’ spending power and studies have revealed that the absence of female perspective in the board room will ultimately affect the profits.

How Important is Experience in Venture Capital?

Apr
21

In the world of information and technology, innovation is a key factor that drives the economy. Media is filled with success stories of founders in the Silicon Valley. On the other side of it, however, stands the venture capitalists who help these entrepreneurs materialize their dreams into successful businesses.

The venture capital sector in the United States is considered one of the key sectors that contributed to its economic growth. With the passage of time, the industry has faced massive growth around the globe and there is an increasing competition among investors to make it big. Some of the famous venture capitalists of earlier times are Tom Perkins, Tommy Davis, and Arthur Rock. In addition to the capital, it was their investing knowledge and experience that contributed toward the expansion of a tech industry.

 

Do You Need Talent for Venture Investing?

The venture capital industry has continuously evolved during the past few decades, and with that, some contradictions are brewing in the market. For example, the investors who dominate the market claim that they know how to choose a winner who would experience the same success as Facebook or Twitter did, yet, they expand the horizon of their bets, hoping that at least one of these will make it big.

This gives rise to a question:

Do you need talent for venture investing?

If so, what would it be?

The answer to this is simple; no! You do not need any special talent. Accounting or financial modelling skills are useful for venture capitalists, but it is important to note that early stage companies are not the same as public markets. In fact, they are run by owners who are still paving their way to success. The only thing that counts is the experience and skill of people who have already worked with startups and are ready to do whatever the job demands. Moreover, there is a common perception in the market that venture capitalists with a huge network of proven founders are the right choice, yet, you cannot rule out the fact that proven founders tend to ask for big checks, which reduces the share of a limited partner. New venture capital firms, on the other hand, are hungry to win and have the drive to listen to what startups want.

 

No Transparency in the Venture Capital Market

The venture capital market is not transparent, which is good news for venture capitalists, but not for the general public. Venture capitalists usually put their cash in long term investments, due to which, their outcome is not immediately visible. Therefore, it is difficult to measure the success and failure of any investment in the short run. Only a few estimations are publicly made available to compare the relative performance of one venture capital firm against another.

 

European Investment Fund – Evaluating Venture Capitalists Performance

European Investment Fund (EIF) is one of the very few institutions that have great access to venture capitalist funds for many years. In a recent report by EIF, analysis was conducted on the activities performed by venture capital firms in Europe over the last 20 years. Between 1996 and 2015, there were more than a thousand startups that were fueled by 355 EIF backed funds. According to the report, venture capitalists who were investing for the first time performed equally well as venture capitalists (VCs) with broader knowledge and experience, especially when the economy is booming.

 

Experience and Skills Matter

However, the explanation given in the EIF report was quite ordinary as they claimed to have good skills when it comes to choosing venture capital funds. It was further stated in the report that even the new VCs that have their backing perform well. But it did not have the coherence with another conclusion they reached in the same report, i.e., venture capital firms that carry out investments for the first time give a worse performance when markets are not doing well and these are the times when experience plays a vital role in defining the outcome of any investment.

 

This gives rise to another aspect of VC investing that is opposite to the perception of the industry; selecting a winning startup during the times when markets are booming is something newbies do as good as the experienced ones do, yet, the real test lies in avoiding losers and this can only be achieved with experience and the right skills.

Women Still Struggling in the World of Technology and Innovation

Apr
13

Although, it seems as if things are moving in a positive direction for female entrepreneurs, there is yet a lot to be done. Women have made accomplishment in every field, but they are still facing a number of challenges, especially when you talk about the increasing number of female startup owners and their ability to get funding.

David S. Ricketts, the senior innovation scholar at the Technology and Entrepreneurship Center at Harvard, said that this is the number one challenge they face when their businesses are experiencing growth.

 

Challenges Faced by Women Entrepreneurs in the IT Sector

Female owners of IT companies have to come across various obstacles when they try to raise capital from venture capital firms. This holds true in case of the Silicon Valley and tech hubs in Amsterdam, Berlin, London. Not only does it adversely affect the progress of women entrepreneurs, but it is also bad for the technology sector, because restraining their leadership and talent hampers the overall growth and impede innovation. Moreover, the gender gap is rapidly increasing around the world, with 90 percent of the venture capital going to male entrepreneurs and only 10 percent retained by female founders. In addition to that, only 10 percent of the strategic level positions in tech companies are occupied by women.

According to the report by the National Women’s Business Council, women invest half the amount of capital invested by men in the startup businesses. It was further mentioned in the report that firms with female founders usually get far less equity financing from venture capitalists and angel investors as compared to companies with male owners, i.e., 14.4 percent vs. 3.6 percent.

Furthermore, only 1.8 percent of the women ask their close family or friends to raise capital as opposed to 9.2 percent men.

 

Female Entrepreneurs in the European Market

A similar trend has been observed in the European market as well, wherein, the IT sector is on the boom, yet the percentage of women leaders is a lot less as compared to men and only a small percentage of venture capital is allocated to startups led by female entrepreneurs. The United Kingdom (UK) is the second biggest startup hub after Berlin. 86 percent of the startups in the UK that receive venture capital funds are owned by men. Whereas, the percentage of angel investment secured by men and women is 56 percent and 44 percent respectively. Unfortunately, even in the IT sector, the distribution of capital is not based on merit.

With such funding constraints, women owned startups in the UK only represent 15 percent of the entire sector. They either revert to self-funding or seek crowdfunding opportunities to survive in the long run.

 

Female Entrepreneurs Generate More Revenue than Male Founders

It is worth noting that female owner companies earn 12 percent more revenue as compared to companies run by men in the IT industry, and their return on investment is 35 percent higher than the firms owned by their male counterparts. If they are given appropriate support, not only do they give better performance, but also make exceptional achievements. This holds true for women living in any part of the world.

 

How Can Female Entrepreneurs Contribute to Better and Sound Economy?

According to one estimate, if women in the UK, who wants to have their own startup companies, get the right support, they can instantly generate more than 300,000 new businesses and create more than 400,000 employment opportunities. Moreover, female-led businesses can contribute to innovation and better quality products with great consumer satisfaction.

 

The U.S. Firms, such as Backstage Capital and Kapor Capital, and the UK firms like Albright are some of the prominent examples of women-led capital firms that have proven to be the game changers in the venture capital (VC) community. To let the innovative and productive ideas flowing in the IT market, VCs should open the doors to give female-led companies a head-start, because it is possible that the owner of the next big unicorn is a female entrepreneur.