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2014 2015

2013 2016 2012

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The VC cooldown moderates PAGE 5 ›› 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Is there a Series A crunch? PAGE 9 ›› SPONSORED BY

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Credits & Contact PitchBook Data, Inc. JOHN GABBERT Founder, CEO ADLEY BOWDEN Senior Vice President, Market Development & Analysis

Content GARRETT JAMES BLACK Senior Analyst BRIAN LEE Senior Analyst JENNIFER SAM Senior Graphic Designer

Contact PitchBook pitchbook.com

Contents RESEARCH [email protected]

EDITORIAL [email protected]

SALES Introduction 4 [email protected] Overview 5-6 Angel & Seed 8 Follow-on Financings at the Early Stage 9-10 COPYRIGHT © 2016 by PitchBook Data, Inc. All rights reserved. No part of this Early & Late Stage 11 publication may be reproduced in any form or by any means—graphic, electronic, or mechanical, including photocopying, Q&A: Robin Gill, City National Bank 12-13 recording, taping, and information storage and retrieval systems—without the express written permission of PitchBook Data, Inc. Rounds by 1st Financing, Sector & Size 14 Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Exits 15-16 Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. Fundraising 17-18 This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to 2Q 2016 League Tables 19 be relied upon as such or used in substitution for the exercise of independent judgment.

3 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

The U.S. venture environment remains The data you need to be a better subdued VC investor Introduction The PitchBook Platform To an analyst of venture capital, the past few years are a rich trove of novel for venture capital developments ripe for inquiry. The global backdrop of persistently low or slowing economic growth as well as unprecedented monetary policies dictating financial • Know everything markets has burnished the relative appeal of private equity, including venture that happens in the capital. As technology further revolutionizes every industry, whether quickly or venture space slowly, the allure of outperformance has never shone brighter. Hence the familiar • Make smarter narrative of many late-stage private companies still raking in large amounts of investments capital and financings in what seems to be the new status quo. That’s on top of valuations remaining inflated by historical standards, even as overall VC activity • Find LPs & raise funds falls yet again on a quarterly basis, albeit a little less steeply than before. It’s not faster that investors are still foolishly pumping up a bubble, but rather that there is an overabundance of capital to be allocated to worthwhile opportunities. At the • Elevate your firm with same time, venture capitalists and nontraditional VCs are well aware they need to kick-ass technology exert and dictate more discipline in the event of a global slowdown.

This confluence inevitably has resulted in a cooling of investment frequency but With data on: not funding size, as capital is increasingly concentrated in maturer companies. Companies Simply put, having already entered the high-risk, high-reward field of VC, investors are willing to tolerate greater levels of illiquidity risk, as long as it’s Investors within a certain timeframe. The question that then ensues is that of where the Deals tipping point for illiquidity risk is, as well as the liquidity prospects of the existing M&A crop of late-stage, heavily funded companies. Limited partners We hope the analysis and datasets within this report prove useful as you conduct Funds your business over the coming quarter. If you have any questions or comments, don’t hesitate to let us know at [email protected]. Financials Advisors People

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Broadly, trends remain the same Overview

aving concluded the first half Midway through the year, capital invested is on pace to match last year Hof 2016, the primary narratives U.S. VC activity driving the venture industry have not changed. If anything, the key storyline Deal value ($B) of mature, late-stage companies— 10,425 10,173 # of deals closed either full-fledged unicorns or their 9,209 slightly lower-valued counterparts— 7,967 staying private and continuing to amass substantial sums has intensified. 6,711 They are the reason, after all, that 5,377 the second quarter of 2016 saw a sum invested that approaches what 4,236 4,658 4,411 3,967 can safely be called ludicrous: $22.3 3,235 billion. Even if the quarterly total of round counts inches up in the weeks to come as more data is gathered, there has been a clear deceleration in

venture financings that we anticipate $29 $36 $37 $26 $31 $44 $41 $44 $68 $79 $40 to plateau, in accompaniment of that 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* immense number. In conjunction, both Source: PitchBook illustrate that many investors never *As of 6/30/2016

Thanks to mega-rounds, 2Q saw a staggering $22.3B invested in total U.S. VC activity $25 3,000

2,500 $20

2,000 $15 1,500 $10 1,000

$5 500

$0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2011 2012 2013 2014 2015 2016 Deal value ($B) # of deals closed Angel/Seed Early VC Late VC Source: PitchBook. Note: Uber’s mammoth financings in the first half of 2016 were collated into one super round in 2Q 2016 according to PitchBook methodology.

5 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

truly bought into the exaggerated their place has been taken by other, financings should even be considered hype of a venture capital bubble, similarly nontraditional VC investors. in tandem with late-stage venture. but rather they’re well aware that But both nontraditional and traditional Although their advent has changed overexuberance occurred and investors are hedging somewhat, the entire late-stage conversation, consequently have begun dialing even if by doubling down on unicorns. the fact remains that since many VCs back. It’s not just the traditional VCs, The extent of not only company age still back unicorns, their eventual fate of course, but also hedge and mutual but also dollar sums that are now in is crucial. On one hand, Twilio’s IPO funds that have pulled back, although play call into question whether such is a somewhat promising sign for not just unicorns but other mature VC- backed companies, but on the other, Winners take all: Since 2014, unicorns have been responsible for much of Zenefits’ troubles illustrate all too the surge in VC invested, with Uber’s billions in 1H 2016 the standout well the difficulties many prominent U.S. VC activity by financings of unicorns unicorns not in the class of Uber and Airbnb face—and, consequently, $25 3,000 their investors face. That story is still ongoing, its conclusion indefinite. 2,500 $20 What is definitive is the steady decline in overall VC activity, even if dollar 2,000 amounts remain stubbornly high. VCs $15 are still—more cautiously—hunting 1,500 for good opportunities to put their $10 abundant capital to work, while 1,000 tourist VCs are still backing what they consider to be clear winners in certain $5 500 verticals. The second half of 2016 will witness potential resolution of liquidity $0 0 challenges for some late-stage 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q companies via tech M&A or a return to 2013 2014 2015 2016 public markets, but the consequences Non-unicorn deals ($B) Unicorn deals ($B) # of deals closed of capital abundance will continue to Source: PitchBook be felt, as investors still have plenty of capital and a mandate to back worthwhile companies.

A flight to quality is still boosting the proportion of Focus on maturer cos. evidenced by $25M+ financings large financings accounting for over 66% of all VC invested in 1H U.S. VC activity (#) by round size U.S. VC activity ($B) by round size

100% 100%

90% $25M+ 90% $25M+

80% 80% $10M-$25M $10M-$25M 70% 70%

60% $5M-$10M 60% $5M-$10M 50% 50% $1M-$5M $1M-$5M 40% 40%

30% 30% $500K-$1M $500K-$1M 20% 20%

10% Under $500K 10% Under $500K

0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2016*

Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

6 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT ©2016 City National Bank City National TechnologyBanking “ us double us our sales.” City Nationalhelped City National is plan…and actuallyaccelerateit. has allowed ustocontinueexecuting onourbusiness helping usputtogetherafinancingstructure that in in sales.CityNational hasbeenincredibly flexible of CityNational Bank we have more thandoubled growing atapretty rapidrate,andwiththesupport been installed ondevicesacross theworld. We’re Over 200millionSmule musicapplicationshave (888) 403-1906 Senior Vice President, Managing Director Rod Werner Contact Findyour wayup. Findyourwayup.com/TechSolutions Hear Jeffrey’s at completestory CEO, Smule Jeffrey Smith The way up The way ® for Smule. SM

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Activity descending to 2012 at even the earliest stages. For decline in the number of angel & seed example, even though quarterly rounds implies a pending plateau at a levels by count activity fell yet again between 1Q and lower level, as dedicated seed-stage U.S. angel & seed activity 2Q 2016, the fact over $2 billion was firms still have capital to spend and invested across 990 rounds indicates angel investors will still seek some he angel & seed environment has that many angel & seed investors still exposure to venture. Round size Tgrown increasingly sophisticated. have plenty of money on hand, they inflation may be mild relative to the Apart from novel methods of are just increasingly selective about multimillions of dollars sloshing around assembling and dispersing pools where they put it. In broader context, the late stage, but it still persists of capital such as angel syndicates, high net-worth individuals’ portfolios among angels and seed-stage firms, crowdfunding and more, the profound are facing considerable volatility and will continue until a substantive effects of the influx of capital at the currently, so many are recalibrating macroeconomic or financial shock or late stage still continue to reverberate their risk tolerance. The softening drought of liquidity occurs.

U.S. angel & seed activity

Deal value ($M) # of deals closed 1,532

Source: PitchBook 1,183 1,368 1,228 1,270 1,074 990 879 864 667 443 594 370 $1,005 $1,234 $1,535 $1,276 $1,417 $2,605 $2,015 $2,007 $2,476 $2,243 $1,844 $1,660 $2,029 $696 $637 $548 $544 $728 $776 $898 $948 $900 $962 $478 $381 $405 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2011 2012 2013 2014 2015 2016

U.S. angel & seed activity (#) by round size U.S. angel & seed activity ($M) by round size

100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2016* Under $500K $500K-$1M $1M-$5M $5M+ Under $500K $500K-$1M $1M-$5M $5M+ Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

8 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

Is there a Series A crunch? Follow-on venture rounds at the early stage

Until last year, more and more companies received additional angel/seed ne of the more important shocks follow-on financings Oto consider is the potential for a U.S. companies (#) with angel/seed follow-ons by first investment year crunch of capital at the early stage, particularly between seed and Series 4,000 A financings. Is it actually happening, # of companies w/o angel/seed follow-on 3,500 however? First, the background # of companies w/angel/seed follow-on must be established. The venture 3,000 boom contributed to an increasingly competitive early-stage funding 2,500 environment for both investors and founders. From an investor’s supply 2,000 perspective, the impact of cloud hosting among other cheap, scalable 1,500 technologies and former employees of 1,000 successful venture-backed companies founding their own startups led to 500 a bumper crop of opportunities for investors, as well as intense 0 competition for funding. This led to 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* the formation of angel syndicates Source: PitchBook and dedicated seed-stage funds such *As of 6/30/2016 as NextView Ventures, with many jockeying to position themselves as Series A follow-ons did not increase in proportion to a surge in seeds, the first institutional investors. As long though recency should be taken into account as plenty of capital kept flowing into U.S. seed rounds (#) with Series A follow-on investments the coffers of VC funds and liquidity 2,500 40.0% prospects remained bright, the variety of sources of financing led to nearly 35.0% linear growth in angel/seed rounds up 2,000 until 2014 and 2015, when an elevated 30.0% plateau was reached. Swelling in round 25.0% sizes and valuations inevitably ensued, 1,500 with lines blurred between what was 20.0% traditionally a seed or a Series A.

1,000 15.0% At the same time, an increasing number of companies began garnering 10.0% angel/seed follow-on financings, 500 7.4% as they required additional capital 5.0% 1.2% to reach milestones and the seed 0 0.0% environment bifurcated into pre-seed 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* and seed and grew in sophistication. Total seed deals (#) Series A follow-on (#) % of follow-on Given the inflation in median angel/ Source: PitchBook seed financing sizes, investors began doling out capital in more tranches, tying infusions of cash to achievement of certain metrics. Meanwhile, more companies also graduated to Series A

9 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

follow-ons, but not nearly in a number meaningfully bespoke capital A potential problem is that follow-on proportionate to the swell in seed injections. That way, investors hope financings can be viewed as a sign of funding. to usher portfolio companies along strength in VC firms’ portfolios but a steadier path in these trying times. also can lead to a downward spiral As the venture boom began losing Even at the seed stage, investors of more money chasing bad deals. steam amid overheated valuations, expect startups to display metrics Particularly since much of the low- moreover, VCs and angels still exhibiting good product-market fit— hanging fruit in certain sectors such as retained plenty of capital looking among others—that previously were consumer software is now gone, being to be put to work. Accordingly, the reserved for those looking to raise a capital efficient in such areas no longer competitive challenge in a cautious Series A, while also customizing to means as much. In other, more capital- market is backing the best teams founders’ specific abilities and needs. intensive sectors such as hardware, with increasingly efficient albeit those advantages still play a role but In the first half of 2016, the proportionate decrease in angel/seed follow- not nearly as significantly. ons has been smaller What all this entails is that angel/ Angel/seed rounds & all angel/seed follow-ons in U.S. seed activity will continue to 6,000 moderate into a plateau at best or further diminish as investors remain # of all U.S. angel/seed follow-on rounds 5,282 cautious. In the meantime, micro- 5,000 funds will likely consolidate or wash Total of U.S. angel/seed rounds out given lackluster performance. 4,000 Meanwhile, the barriers to Series A or significant institutional funding will remain quite high, given the sheer 3,000 crop of opportunities still available. The funnel of money at early stages 1,891 2,000 1,693 has narrowed and is narrowing in that semi-nebulous area between seed and Series A. Consequently, the angel/ 1,000 647 pre-seed/seed environment will remain fragmented, with many follow-ons 0 within that arena, and relatively fewer 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Series As on a historical basis. And so, Source: PitchBook there will be a contraction, if not an *As of 6/30/2016 outright crunch. Angels’ increasing importance is clear Follow-on seeds became increasingly prevalent U.S. first VC rounds (#) by series U.S. first follow-on VC rounds (#) by series

100% 100%

90% 90%

80% 80%

70% 70%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2008 2009 2010 2011 2012 2013 2014 2015 2016* Angel Seed A Angel Seed A Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

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The new normal? U.S. early-stage VC activity U.S. early & late-stage VC Deal value ($B) # of deals closed 832 801 activity 755 731 742 737 752 743 683 685 687 662 588 he totals of U.S. venture activity 554 Tin 2Q illustrate clearly that the so-called venture capital bubble is not so much popping as slowly deflating. At the late stage, a handful of highly successful companies continue to rake in giant sums that $3.4 $3.8 $3.4 $4.5 $4.6 $5.6 $5.0 $5.7 $5.2 $6.4 $6.2 $6.3 $6.6 $5.8 blur the line between VC and growth investment in exchange for minority 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q stakes. Earlier in the investment 2013 2014 2015 2016 lifecycle, meanwhile, fewer and fewer Source: PitchBook companies are getting funded, yet as U.S. late-stage VC activity capital remains abundant, those that can demonstrate robust metrics are Deal value ($B) 542 # of deals closed still able to command fundings of hefty 470 489 450 453 size. This trend will continue until such 428 large financings either fail to result in 438 437 413 437 435 418 adequate gains. Alternately, they may 375 362 continue to garner funds and thereby help prolong the venture investment cycle into this new normal of fewer yet historically large venture rounds. With flagship VC firms moving further down the capital stack in terms of company $12.5 $11.4 $12.9 $11.2 $12.6 $14.5 age and mid-range VC fund managers $6.0 $5.8 $6.5 $6.0 $7.6 $8.4 $9.5 $9.2 competing at the post-traction phase, 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q there is surely no shortage of capital, although caution will continue to 2013 2014 2015 2016 depress the level of activity. Source: PitchBook

U.S. early-stage VC activity (#) by round size U.S. late-stage VC activity (#) by round size 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2016* Under $500K $500K-$1M $1M-$5M Under $500K $500K-$1M $1M-$5M $5M-$10M $10M-$25M $25M+ $5M-$10M $10M-$25M $25M+

Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016 11 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT Technology deal volume dropped I moved to New York in 2010. In significantly in the second quarter, the past six years, the technology with a larger downward trend over market in the city has grown at an the past 15 months. How has that extremely fast clip. I’ve had the benefit been reflected in your experience so of working with some of the most far this year? exciting high growth companies that are becoming fixtures in our New York The funding environment has definitely community. I’ve seen growth among shifted. The volatility of public markets, native New York entrepreneurs as well combined with technology market as among transplants like me, who sentiment, means that valuations moved here specifically to be part of are down and equity funding rounds this exciting time. are taking a lot longer to close. Also, investors are being more diligent about How has activity in New York shaped Robin Gill their investments. And we are seeing up so far this year, relative to what Senior Vice President, a lot of inside rounds, where current other City National offices are seeing? investors are focusing their efforts on New York Market Manager, In 1Q, New York was the only major existing portfolio companies. Technology Banking regional market that remained steady City National Bank Have there been any changes in in terms of the number of companies Robin Gill manages the New York what City National Bank’s clients being funded, with 225 relative to 219 office of City National Bank’s Technology are looking for, in terms of company in 4Q 2015. We continue to see the and Venture Capital Banking team. fundraising expectations? market remain healthy and a lot of The team, with offices in Palo Alto, San good companies get funded. The City Francisco, Santa Monica and Boston, The “grow at all cost” mentality is gone National brand is getting stronger in provides banking and lending services and while companies continue to strive to companies ranging from pre-revenue, this region too, so personally we are for growth they are more focused on venture-backed startups, to later-stage seeing more activity than ever before. and profitable technology companies. maintaining efficient burn rates. Many For more than a decade, Robin has of the conversations regarding size of Does your activity in New York differ worked closely with a number of the top an equity round have revolved around substantively from what other City fast-growing companies in New York, ensuring the company has sufficient National offices do? Boston and Silicon Valley, providing them cash to get to profitability without with a wide array of credit, banking and The evolution of the New York investment solutions. He is a Bay Area any reliance on future equity. While technology market is still in its early native with significant expertise in serving we continue to see companies able to technology companies and is committed days, as compared to Boston or the raise capital, the bar is higher and the to adding value and leveraging his San Francisco Bay Area. The market valuations are often lower. network to help entrepreneurs be continues to expand and there are successful. You started your career in the Bay more later-stage companies than we Area. How long have you been in New had in the past. A few successful IPOs York City and how has the market would help to affirm New York’s status changed in that time? as a top U.S. tech market.

12 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT Additionally, here in New York with between, say, helping provide a What do you see happening later this City National Bank we have the certain amount of debt in a late- year and into 2017? benefit of our entertainment practice, stage financing to a SaaS company One thing I anticipate, which happens which has established an extremely as opposed to a hardware business, sometimes in environments where strong brand in this city. There are particularly in the current venture funding is a little more difficult, is a many overlaps between technology environment? greater concentration of funding in the and entertainment companies these We are focused on working with the largest tech markets. It just so happens days and that gives us a significant top companies backed by the best that coincides with where we have advantage over other banks. VCs. History has shown that successful technology bankers—San Francisco, Our other strength is private banking. companies can be created in any Palo Alto, Boston, Southern California We are seeing savvy entrepreneurs market, so we continue to maintain and here in New York. use this time to make sure that their an open view on industry/sector In this environment, we often see personal investments are structured in trends. We do find ourselves lending investors stay closer to home or where an optimum way. Even for companies to more SaaS companies these days, their portfolio is currently located still in the early stages, founders need particularly late-stage companies that when they make new investments. help establishing efficient tax and have good metrics. These companies trust strategies to minimize future typically have controlled burn rates obligations. with strong growth trajectory allowing us to help fuel more growth by On a sector basis, how does your providing debt. approach in transactions differ

About City National

With $41.2 billion in assets, City National Bank provides banking, investment and trust services through 74 offices, including 16 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. In addition, the company and its investment affiliates manage or administer $55.7 billion in client investment assets.

City National is a subsidiary of Royal Bank of Canada (RBC), one of North America’s leading diversified financial services companies. RBC serves more than 16 million personal, business, public sector and institutional clients through offices in Canada, the United States and 36 other countries.

For more information about City National, visit the company’s website at cnb.com.

13 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

Increasing caution VC activity by first financings, sector & median deal size

Trepidation is evident Investors are still bidding up quality opportunities First venture financings in the U.S. Median VC round size ($M) by stage

$12 3,681 Deal value ($B) 3,557 $11.0 3,371 Angel/Seed Early VC Late VC $10.0 # of deals closed $10 2,831 3,165

$8

2,094 $6 $5.5 1,746 $5.0 1,676 1,656 $4 1,245 1,092 $2 $0.8 $1.0 $0 $5.7 $6.6 $5.9 $4.0 $4.7 $6.0 $6.9 $6.6 $8.0 $8.5 $2.8 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2016* Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

Every sector remains significantly down Software raked in $20.5B in 1H 2016 U.S. VC activity (#) by sector U.S VC activity ($B) by sector

12,000 Commercial Services Consumer Goods & Recreation $90 Commercial Services Consumer Goods & Recreation Energy Healthcare $80 10,000 Svcs/Suppl./Syst. Energy Healthcare Svcs/Suppl./Syst. IT Hardware Media $70 IT Hardware Media 8,000 Other Pharma $60 Other Pharma & Biotech & Biotech Software $50 6,000 Software $40

4,000 $30

$20 2,000 $10

0 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

14 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

Plateauing or deepening? Exits

On pace to record the fewest exits since 2010 enture-backed exits in the U.S. venture-backed exit activity VU.S. remain scarce, although, similarly to dealmaking, what events Exit value ($B) # of exits closed are occurring have been relatively 1,030 lucrative, with a total of $24.2 billion 956 in total exit value achieved in the first 867 885 half of the year. On a quarterly basis, the deepening slide in the number 691 725 of completed exits—with 2Q 2016 609 recording the fewest since the same period in 2010—is more troubling, but even a half-year’s tally must be 507 kept in perspective. This slowing was 459 476 329 preceded by a two-plus-year stretch of considerable exiting, as corporate acquirers and the public markets welcomed VC-backed portfolio companies with open arms. Now, of $24 $43 $21 $15 $29 $37 $54 $37 $84 $50 $24 course, public markets remain quite 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* choppy—despite Twilio’s debut, which Source: PitchBook is little more than a signpost that each *As of 6/30/2016 will read differently—and strategic buyers have been reining in their acquisitive hunger. The slide in sales deepens, even as exit value sees a bump U.S. venture-backed exit activity

Exit value ($B) # of exits closed 275 255 252 262 237 223 248 240 240 238 236 207 203 187 206 203 220 171 201 202 164 175 176 160 149 153 $11.4 $23.8 $11.1 $12.3 $8.4 $7.1 $9.6 $8.4 $10.8 $14.2 $15.0 $12.9 $17.9 $38.1 $8.0 $9.1 $6.8 $10.7 $14.9 $15.9 $8.2 $15.2 $8.4 $9.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2011 2012 2013 2014 2015 2016 Source: PitchBook

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The question is whether this slide will growth, will also help, as will the Series significant reason. Pressure to achieve deepen even further or prove more A contraction, which could produce liquidity and access to broader and of a temporary plateau. Potentially, a surplus of seed-stage exits by deeper sources of capital will result as predicted by several venture companies unable to hurdle that gap. in more public offerings down the luminaries, a correction in valuations But the countervailing trend of staying road, but they shall remain few and could lead to a spate of sales to private for as long as investors and far between for the remainder of this strategics, with some taking LinkedIn’s founders remain amenable still holds. year, barring unexpectedly positive purchase by Microsoft as a prominent macro shocks. As for M&A, given the On top of that, multiple factors that example of consolidation intensifying continuance of the status quo in the continue to contribute to public in verticals such as SaaS. Prolongation event of a decline in valuations, that markets’ volatility remain in play— of the current macroeconomic will likely recover somewhat, yet not to hardly an inducement for some to take landscape, which has encouraged M&A the levels experienced in 2015. their companies public unless given as one of the few methods of obtaining

At 44 through 1H, PE buyers find tech to their liking The appetites of corporate acquirers remain key U.S. venture-backed exits (#) by type U.S. venture-backed exits ($B) by type

1,200 $90 Acquisition Acquisition IPO Buyout $80 1,000 IPO $70 Buyout 800 $60

$50 600 $40

400 $30

$20 200 $10

0 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Source: PitchBook Source: PitchBook *As of 6/30/2016 *As of 6/30/2016

Fewer exits, but still lucrative Only commercial services remains on pace with 2015 Median venture-backed exit size ($M) in U.S. U.S. venture-backed exits (#) by sector

$100 1,200 Commercial Services $90 $88 Consumer Goods & 1,000 Recreation $80 $77 Energy

$70 800 Healthcare $61 $60 Svcs/Suppl./Sys. IT Hardware 600 $50 $50 Media $40 400 Other $30

$20 200 Pharma & Biotech Acquisition/Buyout IPO $10 Software 0 $0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* 2010 2011 2012 2013 2014 2015 2016* Source: PitchBook Source: PitchBook *As of 6/30/2016. Note, due to the scarcity *As of 6/30/2016 of IPOs, this number is skewed.

16 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

Concentration of capital Fundraising

Strong numbers sustained undraising figures represent the U.S. VC fundraising Flast piece of the current venture market puzzle. It was surprising to some that the first quarter of 2016 saw Capital raised ($B) 260 $10 billion raised for 66 U.S. venture # of funds closed 246 funds, one of the stronger quarterly tallies on record. But even amid a continually apprehensive landscape, 187 188 187 190 179 investors went on to raise more money in a single quarter than ever 148 134 before, with funds such as Andreessen 137 Horowitz’s $1.5 billion pool closing. 112 This resulted in no less than $12.6 billion in commitments to VC. All told, at the midway point of 2016, $22.5 billion has been amassed across 134 venture funds in the U.S. It would

$35 $35 $34 $11 $19 $23 $24 $20 $34 $36 $23 seem that limited partners are more sanguine than even many GPs about 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* the long-term prospects of the venture Source: PitchBook *As of 6/30/2016 industry. But that’s not the whole story. There are many reasons as to why VC fundraising continues apace.

2Q saw a mammoth $12.6B earmarked by LPs for VC funds U.S. VC fundraising

Capital raised ($B) # of funds closed 71 71 67 65 66 66 68

57 56 57 56 49 49 48 50 53 45 44 39 40

33 33 32 31 27 29 $11.4 $8.2 $3.4 $3.8 $3.7 $6.1 $6.2 $2.5 $8.5 $8.6 $4.6 $7.9 $2.7 $6.1 $4.4 $4.3 $5.6 $8.7 $9.3 $7.8 $8.7 $8.8 $11.4 $10.0 $12.6 $4.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2010 2011 2012 2013 2014 2015 2016 Source: PitchBook

17 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

Expectedly, 13 funds of $500M or more have closed in 1H 2016 First, the sheer sums raised are U.S. VC funds (#) by size skewed by a handful of huge vehicles. Secondly, the healthy number of 100% $1B+ pools closed indicate how LPs are 90% willing to turn to venture capital—i.e. 80% $500M-$1B private equity in general, of which 70% VC is just a small slice—in a global environment where outperformance 60% $250M- $500M is distinctly difficult to come by. LPs 50% $100M- from family offices to public pensions 40% $250M managing billions of dollars in assets 30% $50M-$100M are at the very least maintaining their 20% allocations to VC as it simply is more Under $50M attractive than other asset classes, 10% even discounting its overall risk, 0% Source: PitchBook especially when it comes to liquidity. *As of 6/30/2016 Furthermore, the potential risk from 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2016* being underinvested in potentially Continued closes on large funds result in higher average fund sizes lucrative innovation is perceived as U.S. VC fund size too lofty to not be invested in VC. That doesn’t mean LPs are hurling $250 Median their dollars at any VC fund manager; the uptick in capital concentrated Average $200 among bigger funds shows they are $175 still seeking a measure of stability $147 by committing to known managers. $150 Thus far in 2016, only 10 first-time VC funds have closed—granted, they have garnered $1 billion in commitments, $100 Source: PitchBook an impressive haul, but that leaves this *As of 6/30/2016 $54 year on pace to match 2015, which $50 $43 had the second-lowest tally of first- time funds in the decade. In times of uncertainty, particularly in an industry $0 with as much inherent risk as venture, 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* investors crave stability. Despite whatever advantages emerging First-time U.S. VC fundraising fund managers may be able to offer, accordingly, LPs will continue to 42 Capital raised ($B) # of funds closed focus on more established GPs. That $1 billion sum collected by first-time 33 32 VCs speaks more to both proven 33 33 individuals striking out on their own as 26 well as LPs’ overall willingness to gain 25 exposure to the asset class. As for GPs, they are happy to raise while they can 21 20 take advantage of LPs’ open purses, 16 fully cognizant that such conditions 10 may not persist forever. There is only so much liquidity risk that both GPs and LPs can stomach, after all. $2.9 $3.0 $2.5 $1.1 $0.9 $1.8 $1.5 $1.5 $1.6 $1.3 $1.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* Source: PitchBook *As of 6/30/2016

18 PITCHBOOK 2Q 2016 U.S. VENTURE INDUSTRY REPORT SPONSORED BY CO-SPONSORED BY

League tables 2Q 2016 Most active investors Most active investors Most active investors Angel/seed Early stage Late stage

Kleiner Perkins Caufield & Jumpstart Foundry 12 New Enterprise Associates 17 9 Byers 500 Startups 6 Khosla Ventures 11 New Enterprise Associates 8 SV Angel 6 DreamIt Ventures 9 General Catalyst Partners 7 True Ventures 5 Greycroft Partners 9 Spark Capital 6 Andreessen Horowitz 5 GV 9 Sequoia Capital 5 Ben Franklin Technology 4 General Catalyst Partners 9 Partners Insight Venture Partners 5 500 Startups 8 Bloomberg Beta 4 Intel Capital 5 Accel Partners 8 Maveron 4 Lightspeed Venture Partners 5

Battery Ventures 8 Source: PitchBook NXT Ventures 4 Most active law firms Intel Capital 8 Tech Coast Angels 4 Early stage Sequoia Capital 7 Techstars 4 Gunderson Dettmer 71 GE Ventures 7 Upfront Ventures 4 Source: PitchBook Cooley 60 Y Combinator 4 Wilson Sonsini Goodrich & 29 Rosati RRE Ventures 4

Source: PitchBook DLA Piper 24 All league tables are compiled using the number of completed VC rounds for U.S.- based companies in 2Q 2016. Rounds in which a firm advised multiple parties will Latham & Watkins 10 only be counted once for that firm. To ensure your firm is accurately represented in future PitchBook reports, please contact [email protected]. Fenwick & West 9

Goodwin Procter 8 Methodology Orrick Herrington & Sutcliffe 7 WilmerHale 7 Venture capital Source: PitchBook Venture capital, for the purposes of this report, is defined as institutional Most active law firms investors that have raised a fund structured as a limited partnership from a Late stage group of accredited investors, or a corporate entity making venture capital investments. Gunderson Dettmer 43

Valuations Cooley 32 Pre-money valuation: the valuation of a company prior to the round of DLA Piper 18 investment. Post-money valuation: the valuation of a company following an investment. Wilson Sonsini Goodrich & 17 Rosati

Exits Goodwin Procter 12 This report includes both full and partial exits via mergers and acquisitions, Jones Day 8 private equity buyouts and IPOs. Latham & Watkins 7

Fundraising Fenwick & West 6 This report includes all U.S.-based venture capital funds that have held a final Source: PitchBook close. Funds-of-funds and secondary funds are not included.

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