VC70YEARSOF

sosv.com/70vcINNOVATION

FOREWORD“Venture Capital” — financing an endeavor in exchange for a share of proceeds in a broad sense is as old as Columbus, and beyond.

Its modern form as a type of “private equity” for early stage high growth firms — beyond wealthy individuals and families — started in 1946 with French-born AmericanGeorges Doriot, the “father of venture capitalism”.

Disrupting the Spice Trade

Christopher Columbus pitched the rulers of

Portugal, Genoa, Venice and Spain over

7 years until the latter agreed to fund him.

This presentation lists some of the significant evolutions in the financing of early stage high growth companies.

We used a broader definition of venture capital to include various forms of crowdfunding.

VC INNOVATION

Investors are always looking for new ways to allocate capital.

The key questions revolve around risks, returns, liquidity, costs, volatility, velocity, difficulty and amount of capital that can be deployed.

WHY INNOVATE?

TIMELINE OF VC INNOVATION

19721946 2010 20122005 20172009 20112004 20071996 2013 20152006 2008

Sand Hill Rd Super Angel

Sponsored Accelerator Product Crowdfunding

Secondary Market Angel List

Accelerator Fund

JOBS Act

Vertical Accelerator

Corporate Accelerator Regulation A+

VC ICO

ARDCFirst VC

Product Crowdfunding

Startup Studio Accelerator Company Builder Platform VC“DST Deal” Equity Crowdfunding ICO

RegA+ NYSE IPO

SPAC

Note: HAX is a hardware-focused vertical program part of SOSV

Startup accelerators are (generally) companies offering seed money, advice and connections over an intense and limited time period, in exchange for equity.

Co-founded in March 2005 by Paul Graham

Y Combinator created a new category of incubators

ACCELERATORS

As of 2017, the world counts thousands of accelerators.

Some focus on a sector, geography or stage.

They can be for-profit, non-profit, government-backed, sponsored, corporate, etc.

ACCELERATORS

Accelerators Come In Many Flavors

The “Big Four” Invest In >100 Startups / Year

Vertical

Non-Profit University Corporate

Sponsored Government

ACCELERATORS AND FOLLOW-ON FUNDING

Source: Pitchbook

Some investment firms build startups themselves, providing capital and management.

Germany’s Samwer Brothers Founded

Rocket Internet To Build Local Clones

Of Successful Startups

COMPANY BUILDERS

Several venture capital firms started offering a broad range of services to attract and support startups, from recruiting to marketing.

The firm AndreessenHorowitz is among

the most prominent “platform VCs”

PLATFORM VCs

Secondary markets can offer early liquidity to founders, investors and/or employees.

SecondMarket helped buy and sell illiquid

assets such as private company stocks.

It was acquired by NASDAQ in 2015.

SECONDARY MARKETS

Created in 2010 as a matchmaking platform between startups and angel investors.

Since 2015 it allows startups to raise capital from private investors free of charge.

Naval Ravikant

Co-Founder of AngelList

ANGELLIST

As of October 2017 AngelList saw over $650M invested in 1,705 startups and $5.7B in follow-ons.

0

200

400

600

2014 2015 2016

Source: AngelList

STARTUP INVESTMENTS VIA ANGELLIST

OCULUS Raised $2.4M

Acquired for $2BPRODUCT

CROWDFUNDINGProduct crowdfunding is a useful source of capital for startups, particularly in hardware.

Backers generally receive products as reward but no equity.

Note: SOSV is an investor in Makeblock

MAKEBLOCK Raised $185,000 in 2012

500 staff in 2017

The “Jumpstart Our Business Startups” Act is a law intended to help small businesses with funding.

President Barack Obama

signed the JOBS Act

into law on April 2012

JOBS ACT

Further updates to the JOBS Act clarified and eased the rules for equity crowdfunding.

REG A+ / D / CF

Source: SeedInvest

EQUITY CROWDFUNDING

Equity crowdfunding platforms allow individuals to invest directly in companies.

SeedInvest is one of the leading platformsfor equity crowdfunding

EQUITY CROWDFUNDING

“Initial Coin Offerings” are a largely unregulated means of crowdfunding via use of cryptocurrency.

In most cases, the “tokens” sold give access to services and do not equate to company shares or voting rights.

Mastercoin (now Omni) completed the world’s

first ICO in 2013, raising about $500k.

ICOs

ICOs HAVE MULTIPLIED

Source: CoinDesk

Several investors have turned to ICOs to raise new funds. Those funds are often dedicated to investing in crypto-related startups shares or tokens.

Two key benefits is to provide immediate liquidity and a more inclusive base of “LPs”.

Blockchain Capital raised US$10 million in an ICO

VC ICO

Special Purpose Acquisition Companies (SPAC) are “blank-check” or “shell” firms that have no operations but go public with the intention of using the proceeds to merge with or buy part or all of a company.In Sept’17, the IPO of a SPAC by Social Capital

raised US$600M on the NYSE. Draper Oakwood

raised US$50M on NASDAQ.

SPAC

Source: Wikipedia

New ideas are coming, from “Reverse ICO” and a Stock Exchange favoring long-term holding. Both are yet to be tried out.

Time will tell if VCs discover new ways to find capital to deploy, and offer startups more access to funding, communities and customers.Tulip bulbs were a highly speculative

asset class circa 1636.

WHAT NEXT?

1995 201420122010 2018

SOSV EVOLUTION TIMELINE

Angel investor

China/Cross-border Accelerator

Single LP Fund

Hardware Lab to Market

Vertical Accelerator

Life Sciences + Food

Multiple LPs

2015

(next fund)Platform VC

Mobile-OnlySean O’Sullivan

Hardware Sales & Marketing

70 YEARS OF INNOVATIONS IN VENTURE CAPITAL

sosv.com/70vc