SPOTLIGHT ON Venture Capital - Ernst & Young...Spotlight On... 96 Bryan Pearce, EY USA SPOTLIGHT...
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Spotlight On... 96 www.finance-monthly.com Bryan Pearce, EY USA SPOTLIGHT ON... Venture Capital Tel: +1 617 585 0499 | Web: www.ey.com Bryan Pearce, EY’s Global Venture Capital Leader, talks to Finance Monthly about significantly improving returns on VC investment, India’s strong growth and potential moving forward, and the continued popularity of mobile-platform companies in the consumer services sector Consumer services and business and financial services were the two most attractive sectors for 2014 in value and volume. Why do you think that was? The consumer services sector continued to lead the pack in 2014, driven by large funding deals of mobile-platform companies such as Uber Technologies, Snapchat, Instacart and Flipkart. During 2014, the sector attracted US$29 billion (€27.4 billion) of investment– the highest amount invested in the sector in the last six years. The average deal size increased from US$8 million (€7.5 million) in 2013 to US$17 million (€16 million) in 2014. Business and financial services has also emerged as a preferred sector in the last two years. The sector saw US$12.1 billion (€11.5 billion) investment in 2013 and US$20.2 billion (€19 billion) in 2014. The other sectors that remain VC favourite are information technology and the healthcare sectors particularly software and bio-tech sub-sector, respectively. What other VC trends can we expect to see being played out in 2015? VC investors will continue to make significant investment in emerging markets, where the appetite for investing in entrepreneurial companies is growing - due in part to an increased appreciation of the value these innovators and disruptors have to economies with young populations, a growing middle-class and increasing urbanisation. The current trend suggests VC investing will maintain its momentum through 2015. As long as the combination of investor confidence, strength in the public capital markets and favourable VC investment returns continues. Which geographies are seeing the most activity at present? In 2014, VC funding was at its all-time high in three key markets – the US, Europe and China. Compared to 2013, investments increased by 47% and 27% respectively for the US and Europe and almost tripled for China. The surge in China was driven by strong activity in the information technology and consumer services sector. India also saw significantly higher VC activity during 2014, with investment worth US$5.2 billion (€4.9 billion) – the highest seen since 2008 and two and a half times the levels seen in 2013. Consumer services mega-deals such as that of Flipkart.com and Snapdeal.com drove this increase in the Indian market. In terms of hotbeds, the San Francisco Bay Area maintained its lead during 2014 with levels invested almost twice those seen in 2013. Beijing was the second most popular VC destination. How have the economic challenges in Europe affected deal levels, if at all? After recording low activity levels in 2011 and 2012, Europe saw an uptick in VC activity during 2013 – with 15% growth in deal volume and 29% in deal value compared to 2012. Investment levels grew 27% in 2014 despite an 11% decline in deal volume on 2013. However, China overtook Europe for the first time in 2014 to be the second largest VC market after the US. While the European economy is stabilising, there is still a level of uncertainty for VC investors. How has venture capital (VC) been impacted by alternative sources of finance, such as crowdfunding and angel investing? The growth of alternative sources of early-stage finance have allowed many Venture Capitalists (VCs) to adapt and position themselves at a later stage of the funding ecosystem. VCs still play a very important role in providing access to capital resources, relationships, and strategic advice. But, while an entrepreneur can tap into angels or crowdfunding for seed or early stage capital, they typically won’t get the same close relationships and considered advice from those investors as they would from a professional venture investor. As many VCs now invest following one or more early rounds provided by angels, crowd-funding platforms or others, the investment has been partially ‘de-risked’. This allows for somewhat more predictable outcomes and often better returns for the VCs. As economic conditions improve in many international markets, how has this impacted VC? Is there increased competition to now secure the most potentially lucrative investments? More recently, as market conditions become more favourable, there have been encouraging signs across the VC industry, with returns significantly improving and fundraising picking up. 2014 closed on a strong note in terms of global VC investment. With VC investment of US$86.7 billion (€82 billion) in 6,507 deals, this represented some of the highest levels of investment since 2000, reflecting fund managers’ growing optimism. With a robust level of investment activity and rising valuations - particularly for late-stage, exit-ready companies - VC investors compete aggressively on lucrative investment opportunities to optimise portfolio quality and expected returns.
Transcript of SPOTLIGHT ON Venture Capital - Ernst & Young...Spotlight On... 96 Bryan Pearce, EY USA SPOTLIGHT...
Spotlight On...
96 www.finance-monthly.com
Bryan Pearce, EY USA
SPOTLIGHT ON...Venture Capital
Tel: +1 617 585 0499 | Web: www.ey.com
Bryan Pearce, EY’s Global Venture Capital Leader, talks to Finance Monthly
about significantly improving returns on VC investment, India’s strong growth
and potential moving forward, and the continued popularity of mobile-platform
companies in the consumer services sector
Consumer services and business and financial services were the two most attractive sectors for 2014 in value and volume. Why do you think that was?
The consumer services sector continued to lead the pack in 2014, driven by large funding deals of mobile-platform companies such as Uber Technologies, Snapchat, Instacart and Flipkart. During 2014, the sector attracted US$29 billion (€27.4 billion) of investment– the highest amount invested in the sector in the last six years. The average deal size increased from US$8 million (€7.5 million) in 2013 to US$17 million (€16 million) in 2014.
Business and financial services has also emerged as a preferred sector in the last two years. The sector saw US$12.1 billion (€11.5 billion) investment in 2013 and US$20.2 billion (€19 billion) in 2014.
The other sectors that remain VC favourite are information technology and the healthcare sectors particularly software and bio-tech sub-sector, respectively.
What other VC trends can we expect to see being played out in 2015?
VC investors will continue to make significant investment in emerging markets, where the appetite for investing in entrepreneurial companies is growing - due in part to an increased appreciation of the value these innovators and disruptors have to economies with young populations, a growing middle-class and increasing urbanisation.
The current trend suggests VC investing will maintain its momentum through 2015. As long as the combination of investor confidence, strength in the public capital markets and favourable VC investment returns continues.
Which geographies are seeing the most activity at present?
In 2014, VC funding was at its all-time high in three key markets – the US, Europe and China. Compared to 2013, investments increased by 47% and 27% respectively for the US and Europe and almost tripled for China. The surge in China was driven by strong activity in the information technology and consumer services sector.
India also saw significantly higher VC activity during 2014, with investment worth US$5.2 billion (€4.9 billion) – the highest seen since 2008 and two and a half times the levels seen in 2013. Consumer services mega-deals such as that of Flipkart.com and Snapdeal.com drove this increase in the Indian market.
In terms of hotbeds, the San Francisco Bay Area maintained its lead during 2014 with levels invested almost twice those seen in 2013. Beijing was the second most popular VC destination.
How have the economic challenges in Europe affected deal levels, if at all?
After recording low activity levels in 2011 and 2012, Europe saw an uptick in VC activity during 2013 – with 15% growth in deal volume and 29% in deal value compared to 2012. Investment levels grew 27% in 2014 despite an 11% decline in deal volume on 2013. However, China overtook Europe for the first time in 2014 to be the second largest VC market after the US. While the European economy is stabilising, there is still a level of uncertainty for VC investors.
How has venture capital (VC) been impacted by alternative sources of finance, such as crowdfunding and angel investing?
The growth of alternative sources of early-stage finance have allowed many Venture Capitalists (VCs) to adapt and position themselves at a later stage of the funding ecosystem. VCs still play a very important role in providing access to capital resources, relationships, and strategic advice. But, while an entrepreneur can tap into angels or crowdfunding for seed or early stage capital, they typically won’t get the same close relationships and considered advice from those investors as they would from a professional venture investor.
As many VCs now invest following one or more early rounds provided by angels, crowd-funding platforms or others, the investment has been partially ‘de-risked’. This allows for somewhat more predictable outcomes and often better returns for the VCs.
As economic conditions improve in many international markets, how has this impacted VC? Is there increased competition to now secure the most potentially lucrative investments?
More recently, as market conditions become more favourable, there have been encouraging signs across the VC industry, with returns significantly improving and fundraising picking up. 2014 closed on a strong note in terms of global VC investment. With VC investment of US$86.7 billion (€82 billion) in 6,507 deals, this represented some of the highest levels of investment since 2000, reflecting fund managers’ growing optimism.
With a robust level of investment activity and rising valuations - particularly for late-stage, exit-ready companies - VC investors compete aggressively on lucrative investment opportunities to optimise portfolio quality and expected returns.
