Group Corporate Profile

A Globally-Diversified Company

Who Gets Venture Capital Funding?

June 15, 2016    Author: Laurie Meisler、Mira Rojanasakul、Jeremy Scott Diamond  Source: Bloomberg

Investors flooded startups with a record $63.3 billion in 2015. But a volatile stock market and fears of a tech bubble have led VC firms to make more cautious bets this year. The funding total for 2016 is on pace to drop about 25 percent, which means competition for those dollars is even fiercer than usual. What are investors looking for in companies and founders? We looked at 890 U.S. startups that were founded from 2009-2015 and received at least $20 million in VC and other equity funding.

What’s the path to VC cash?

Total U.S. Venture Capital Funding

1

For starters, it helps to be a man.

2

The vast majority of venture capital goes to companies founded by men. Just 7% of the 2,005 founders on our list are women. Companies founded by women also get less money—an average of $77 million compared with $100 million for male-led startups. That shortfall parallels the overall U.S. pay gap, where women are paid an average of 79 cents for every dollar earned by men. Among cities with at least 20 founders, South San Francisco startups have the highest ratio of women founders at 16.1% while Santa Monica is second at 15%.

No Ivy League degree—or any degree—required…

Stanford lives up to its reputation as a startup incubator. But more founders of companies on our list dropped out of school than graduated from top universities.

3

…unless you’re starting a drug company.

4

Study abroad

Twenty-two percent of the founders got their undergraduate education outside the U.S. The bulk of them—114—graduated from schools in India; but two Israeli schools and one in Canada tied for graduating the second highest number of VC-funded entrepreneurs outside the U.S.

5

Head West

6

7

California universities graduated the greatest total number of founders whose companies attracted funding, and the state was by far the most popular place to set up shop. Schools in 45 states have graduated entrepreneurs, yet 81% of the companies we looked at are located in three states.

What happens to companies that get VC?

Some get acquired.

Fifty-seven companies on our list were swallowed by bigger fish—the dream of many startup founders. The biggest by far was Facebook’s acquisition of WhatsApp, a texting app.

8

Some trip and fall.

9

Even companies started by gifted entrepreneurs can fail. Airtime, launched with great fanfare by Shawn Fanning and Sean Parker of Napster fame, was intended to connect friends through video chat. It quickly flopped. (The team is relaunching—quietly this time—with OkHello.) And new companies fall prey to the same problems all companies do: overexpansion, competition and talent drain. Good Eggs, which attracted $52 million in VC money, shut down operations outside of San Francisco after its CEO acknowledged that the company grew too quickly.

Others go public.

10

The average deal for all IPOs for U.S.-based companies since 2010 is $198.5 million. Pure Storage raised more than twice that. Most of the IPOs are in Biotechnology—and most have underperformed their index since going public.