Venture capital is changing as we know it. Even if you're new to the business, you've likely realized that the 40-year-old, once-cottage industry is becoming far more accessible and transparent. This is thanks to notable rising stars like Facebook and Google that have made multi-billionaires out of their young founders and investors.
So what are some of the changes in the last decade? How have traditional firms reacted? In light of the groundswell of newly-seeded startups, what are these firms' seed, deal-flow strategy and has Series A investing gotten tougher?
These are the questions asked on this panel at Amplify, hosted by Vator, Girls in Tech and Thomson Reuters. On the panel were top female VCs from Rebecca Lynn, partner at Morgenthaler, Sharon Wienbar, partner at Scale Venture Partners, Maha Ibrahim, partner at Canaan Partners and Katherine Barr, partner at Mohr Davidow Ventures.
Here's some highlights. (The answers are consolidated and slightly edited)
When asked to describe their firms:
Morgenthaler recently closed its $175 million Canvas fund. The firm focuses on Series A and B. It has three partners, consisting of two men and one woman.
Scale Venture Partners closed its $300 million fund in May 2013. It focuses on the growth stage, or companies generating revenue and seeing double-digit growth y/y. There's no hard and set rules of dollars invested, but the firm takes a board seat. Three out of the seven general partners are women. Scale was also founded by Kate Mitchell.
Canaan is a 26-year-old, $3.5 billion fund. It recently (18 months ago) raised its ninth fund - $600 million. It focuses on seed, Series A and B. Two-thirds of the fund focuses on technology and one-third focuses on healthcare. There are four female investment professionals. A third of its founders in its latest fund are women.
Mohr Davidow Ventures has a $670 million fund, which is its ninth fund. It typicall invests in Series A and focuses on technology, from cloud infrastructure, Web, mobile and enterprise software.
Q: Notwithstanding the fact that it's cheaper to start a company these days, what are two key factors that have changed in the VC business?
There's a polarization in the sizes of funds. There are big, billion-dollar funds and smaller-niche funds under $400 million. Firms are also starting to focus on verticals vs being broad. It's also more expensive to scale a company in the growth stages. While it's cheaper to start a company, growth-stage companies will keep pouring more money into their firms to grow the top line because 30% y/y growth isn't good enough. There's been a rise of secondary investing as comapnies remain private longer and there's been a proliferation of seed rounds that have made venture investing very noisy.
Q: Given this backdrop, has your firm changed its investment philosophy?
MDV hasn't changed its strategy. It's still looking for entrepreneurs in it for the long haul. Canaan looks to take a bigger chunk of equity. The company now looks a bit earlier (sometimes doing seed deals) and also taking a much larger equity stake. Scale doesn't worry as much about finding seasoned CEOs to replace founders, but rather working with founders and building a management team around them. Morgenthaler has changed its vertical focus away from semiconductors, hardware to much lighter-weight, capital-efficient models. It's also more focused and thesis-driven. It can take six months before Morgenthaler feels conviction to get in on a deal.
Watch the rest to learn more about the VCs' approach to seed deals and getting that deal flow, as well as the sectors they're most interested in investing in today.