The Exit Market in 2011 - Dow Jones VentureSource Results

Happy New Year!  One of my resolutions is to increase the number of posts-- stay tuned in 2012 for posts every Monday (this week Tuesday because of the holiday) and Thursday. 

As we begin 2012, we can look back on 2011 as a mixed bag for exits.  Per today's Dow Jones VentureSource release (available here):

  • 522 deals reflected a 14% drop year-over-year, but
  • $53.2B reflected a 26% increase in capital, driven by some big IPOs (Groupon and Zynga)
  • Median prices paid in exits increased 77%, and median amounts raised decreased by 12%

Although the fourth quarter typically shows a surge in M&A activity, that was absent in 2012, perhaps reflecting growing global uncretainty (esp. re: Europe).

What will 2012 bring for the exit market?  Stay tuned.

 

Volatility's Impact on the Venture and Angel Markets

This has been a tough week for the markets. with the DJIA down more than 10% from a month ago, and gyrating by 200 to 400 points a day.  I've read multiple comments on the impact of the pullback and increased volatility on private markets and the consensus seems to be that there is none-- it is not clear whether venture investors will pull back, keep investing or run for the hills.  A few thoughts that might impact the decision follow:

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Stock Vested Over Time? Don't forget your 83(b) election

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Our colleague Kevin Criddle in Seattle recently posted a great article entitled “Section 83(b) Election, A Founder's Best Friend."   An 83(b) election directs the IRS to tax restricted stock (i.e. stock that vests over time) at the time of the grant (when it may be worth very little or when payment is made), minimizing potential tax liability.

As Kevin explains, successful founders that fail to affirmatively make a Section 83(b) election may face staggering tax consequences years down the road.  Kevin discusses the various aspects of an 83(b) election, including who should and should not file, here.

2011 to be Breakout Year for Venture Capital

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By John Hurley, Senior Executive, DLA Venture Pipeline. John Hurley has advised hundreds of emerging growth technology companies on various aspects of their business plans, including management and recruiting issues, market development, strategic partnerships and financing strategies. He has helped more than 50 firms raise capital through DLA Piper's collective global network of angel, venture, institutional and strategic investors.

If the first quarter of 2011 is any indication of things to come, the Venture Capital market in 2011 may have a breakout year.  In Atlanta, for example, Venturesource reported 17 transactions for a total of $187M in venture financing in Q1 2011 vs. 11 transactions for $66M in Q1 2010. The success in ‘Q1 can be attributed to three key factors:  (1) an improving Venture Capital exit market; (2) a strong Venture Capital fundraising; and (3) an increasing size of Venture Capital investments. 

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Term Sheet Tips: Effective Valuation and Warrant Coverage

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Early stage entrepreneurs often get caught up in negotiating valuation while failing to consider the impact of other critical terms of a financing transaction.  There is a great post on Venturehacks about the impact of an oversized option pool on a Company's effective valuation (i.e., the valuation that would put the founders in the same position as without such deal term).

Warrant CoverageThe same analysis can be applied to warrant coverage.   See our previous post "What is a warrant?" for background.

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Startup and Venture Impact on the Atlanta Commercial Real Estate (CRE) Market

Below is a guest post from Brett Kingman, Assistant Vice President with Colliers International. 

As Ross Moore, Colliers International's Chief Economist, reports in his article "Venture Capital Slowly Trending Up:..", venture capital investment is slowly trending up and creating new demand for commercial space.  However, most of the activity is happening in....you guessed it, Silicon Valley.  Silicon Valley companies have received 42.4% of the new venture capital invested thus far in 2011, out-pacing their 33.7% long-term average.  While the Southeast, and more specifically, Atlanta, is currently underperforming against their long-term average, large funds are being raised by the likes of Noro-Moseley, TTV Capital, Fulcrum Ventures, and others.  With these new funds and Atlanta's contingency of FinTech, Internet Security, and Healthcare IT companies, we expect venture capital investments in Atlanta to increase within the next 12 - 24 months.  As these early-stage companies receive capital, the technology industry will continue to lead the way in the commercial real estate recovery by backfilling a good portion of the currently vacant space.

What is a warrant?

A warrant is a security that gives its holder the right to exercise the warrant at a set exercise price for a given period of time and receive shares of stock of the Company.

Warrants are very similar to stock options except that they are typically used for investors, strategic partners, and other third parties (i.e. not for employees, consultants, advisors, or board members of the Company). Similar to stock options, warrants provide upside to the holder without requiring an immediate investment in the Company.

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Dodd-Frank Delay?

Our colleague Asher Bearman, in Seattle, has written that the SEC may delay implementation of the requirement for investment advisers (including VC fund managers) to register unti 2012 (from July of this year).  See here for more.