Silicon Valley Trends — Analysis of 500+ VC Investments in 2014
Written by Isla Munro
If you’re anything like me, you might at some point have wondered what exactly it is that the world’s biggest VCs are getting excited about. We’re constantly bombarded with glorious tales of their winning bets, but rarely do we get a insights into the big picture, all their investments and the range of topics they are currently favouring.
I got a wee bit curious a few weeks ago and decided to crunch some data so if you’ve ever wondered about these things then this post is for you.
To get an overview of what’s going on, a colleague and I spent a few days classifying every investment made by the world’s most active and influential VCs in 2014. In total, we analysed 500+ investments from Kleiner Perkins, New Enterprise Associates, Andreessen Horowitz, First Round Capital and Sequoia Capital and here’s what we found…
B2B is big!
It is interesting to note that every one of the VCs we looked at did more than 50% of their investments in B2B compnies. Notably, 71% of New Enterprise Associates’ investments were in B2B companies.
Business/consumer companies are classified separately — these are more often than not End-to-End companies like Instacart and Uber that have a separate value proposition for businesses and consumer, but that ultimately serve a consumer need, Andreessen Horowitz refers to them as full-stack startups while many fit into the “Do it for me” trend. Other times they have a single product offering that is attractive to both business and consumer customers e.g. Weebly. Sequoia Capital did a relatively high number of these B2B/B2C investments, in particular several large investments in prosumer business models (think Tokopedia, Thumbtack).
Sequoia was also notable for its unusually high nunbers of e-commerce investments as show in the cart below. In particular they made a number of e-commerce investments in China and other Asian countries. Their large investments in Asian companies should come as no major surprise given the $700m international growth fund they announced in 2012.
Software is much bigger than e-commerce and hardware
One thing that became very clear looking at our data is just how big software is. Also striking is how small hardware remains at top VCs, despite major trends in wearables and IoT. Most investments classified as hardware (particularly at Kleiner Perkins and NEA) were therapies in the health sector, there were also a relatively high number of investments in semiconductor and sustainability focused hardware companies. Certainly this confirms a common complaint, that it is very difficult to raise VC funding for hardware startups.
To me it was particularly surprising that e-commerce made up a relatively minute proportion of investments, with only Sequoia paying it much attention. It could be that e-commerce is receiving little attention in the US because so much has already been done in this space over the past 15 years — by comparison in Europe it seems a lot of the big successes are still focussed around e-commerce space — especially Germany comes to mind.
Google Ventures and First Round are clearly more focused on early stage investments, both doing circa 70% of their investments below $15m. On the opposite end Kleiner Perkins and Sequoia are the later stage investors both having done around 60% of their investments in what can be considered growth rounds of above $15m and less than 10% in seed stage investments (e.g. less than $5m).
The biggest rounds tend to be B2C or B2B/B2C
While VCs that are more B2C focused do not necessarily invest in larger rounds overall, what was clear is that B2B/B2C companies received the largest rounds on average ($46.5m), B2C followed ($30m), while B2B investments were on average the smallest ($21m). The differences seem to be almost entirely attributable to the sheer size of a number of later rounds that went to B2C and B2B/B2c companies. Together these companies received slightly more ‘unicorn rounds’ than B2B companies, but what really made the difference in the averages was that a number of B2B/B2C and B2C rounds were in the range of $200–500m (think Uber, AirBnB, Lyft, Pinterest, Snapchat), with Uber raising a total of $1200m. Interestingly, when excluding rounds over $100m, average round sizes were pretty much the same across B2B, B2C and B2B/B2C. Taking the median, B2B and B2B/B2C were almost exactly the same at $13.6 and $13.5m respectively and B2C at $10m. It’s hard to say why consumer oriented companies are more likely to get slightly smaller investments than B2B but perhaps these numbers reflect a tendency for early stage B2C companies to have simple technology and cheaper growth opportunities (e.g. viral growth, guerilla marketing) that require smaller initial rounds. It could also reflect a kind of spray and pray attitude with early stage B2C companies. The massive late stage B2C rounds might imply that once the winners become clear, consumer oriented companies often have huge addressable markets and great scalability thus justifying much larger valuations.
Probably my biggest takeaway from these points is that software really is the darling of the VC world, particularly B2B software. It also strikes me that both e-commerce and hardware companies really have to be that much more successful to get the attention of top VCs.
Enterprise rules in B2B, for some more than others
We defined companies as ‘enterprise’ when their products were targeted at businesses from any sector, rather than targeted to businesses in a specific sector such as health. Unsurprisingly, enterprise was by far the largest “sector” of the B2B investments. Two of the VC firms (Andreessen Horowitz, Google Ventures) seemed to have almost no signle sector specialisation, while others (Kleiner Perkins, NEA, and First Round) were more focused on a few specific sectors. Health, finance and transportation were the biggest B2B sectors following enterprise. Looking at the focus areas (shown below) we noticed that VCs with less sector specialization tended to have specialized considerably more with regards to the functional focus of their investments.
Google Ventures for example invested in relatively few areas but strongly favoured topics such as big data, analytics, security, software and advertising, no doubt intentionally keeping close to Google’s core competencies. Andreessen Horowitz also invested in relatively few topics, with big data and IT infrastructure their core focus areas. In contrast, Sequoia invested across the board in B2B, with only medical devices and pharmaceuticals excluded.
Shopping, real estate and social companies rule the roost
Well over 50% of every one of the VCs’ B2C investments were in the retail, lifestyle and social sectors. Retail was the largest sector, closely followed by lifestyle and then social networking. The dominance of these three sectors might explain the success of Houzz, as it elegantly straddles lifestyle, social and e-commerce. There were also plenty of investments in consumer health companies, though Kleiner Perkins and NEA, who have traditionally invested a lot in pharmaceuticals and medical devices are the only VCs of the group that seem to be taking a strong interest in B2C health (think Welltok, Mango Health and Teladoc). Given the potential of the digital world to disrupt the health sector, it will be interesting to see if this changes in the next couple of years. Google and Kleiner, while doing little retail had a stronger focus on social networking companies (Snapchat, Massdrop, Remind etc.) while New Enterprise Associates did more investments in the lifestyle space (Houzz, Indiahomes, Duolingo)
Looking closely at investments in the B2C space, you can break the VCs down into those that are picking just one or two ‘winner’ sectors and diversifying on the rest (Andreessen, First Round and NEA), and those that pick a number of ‘winner’ sectors (Kleiner, Google and Sequoia).
Disrupting everyday goods and services dominates in consumer
Immediately, striking is that Sequoia made such a large number of investments in the Food & Beverage space, three of which (totalling over $300m) went to Chinese companies (Jiuxian, Meituan). Overall, three out of the four biggest areas were related to necessities of life (food, shelter and mobility), while pulling medical diagnostics and healthcare together would make healthcare the fifth largest topic. This suggests that starting a company that serves basic human needs might be a better bet than building another puzzle game. Nonetheless, a lot of investments went to leisure based B2C companies, in particular messaging (Remind, Whisper), fashion (Threadflip, Teespring, The Black Tux) and photography (Path, Imgur, Lytro). The remarkable popularity of messaging companies begs the question of whether this space is becoming somewhat saturated. 2014 definitely seemed to be the year of anonymous/self-destructing messages (Whisper, Secret, Snapchat, Confide, YikYak), it will be interesting to see whether messaging companies continue to receive so much attention — a cursory look through investments from 2015 suggests perhaps not).
You can also contact me personally via Linkedin or e-mail — I will be happy to answer any questions about this post or help you with queries about raising a seed round. Comments and questions also welcome via the comments section.
Investment Profiles (based on 2014 investments)
Andreessen Horowitz — B2B and B2C — mostly software — mid to late stage — enterprise/telecomm.: big data, analytics, security and IT infrastructure — consumer: food, real estate, fashion, education
First Round — B2B & B2C — mostly software — mostly early stage — enterprise/finance/transportation: big data, software development, marketing — consumer: retail, lifestyle, social, messaging, fashion, photography, e-commerce
Google Ventures — mostly B2B, some B2C — mostly software — mostly early stage — enterprise/finance: big data, analytics, security, software development, advertising — consumer: social, messaging, mobility, publishing
Kleiner Perkins — Mostly B2B, some B2C — mostly software and med tech hardware — mostly later stages — enterprise/health: security software, big data, pharmaceuticals, medical devices — consumer: social, health, messaging + diverse
New Enterprise Associates — strongly B2B — mostly software and medtech hardware — mostly mid to late stage — enterprise/health/telecomm.: analytics, pharmaceuticals, medical devices, IT infrastructure — consumer: lifestyle, health, education, real estate
Sequoia Capital — mostly B2C, some B2B — Mostly software and e-commerce — mostly later stages — enterprise/health/retail: big data, analytics, security software, medical diagnostics, payments — consumer: food retail, real estate, mobility, banking, hospitality, gaming
Big thanks to Jacob Fisher for his assistance on this project.