Venture Capital Outlook 2014 event notes

Venture Capital Outlook 2014, hosted by PotomacTechWire at Gannett.

Harry Weller, General Partner, NEA
Tige Savage, Managing Partner, Revolution Ventures
Don Rainey, General Partner, Grotech Ventures
Arun Gupta, Partner, Columbia Capital
Thanasis Delistathis, Founder and Managing Partner, New Atlantic Ventures
Moderator: Paul Sherman (@PaulRSherman)
This breakfast has become one of the more interesting events I attend.  Five of the area’s top VCs talking about the year that was and predicting the year ahead….and some of them are even funny!
TL;DR:  VCs will remain focused on the enterprise space in 2014, with particular emphasis on new platforms & tools for the healthcare, education and cyber-security industries.
Notes for a portion of the moderated Q&A follow:
Biggest surprises in 2013?
- strong IPO market, particularly biotech which had its first window for exits in a decade.
- death of privacy?  will NSA revelations make privacy paranoia mainstream?
- the disconnect/dissonance between robust capital markets and total disfunction on Capital Hill…could mean a false sense of security.
- 2012 was all about Mobile but 2013 was SaaS.
- VC stopped being a four-letter word.
- Though average exit statistics held, there was greater stratification as the scale needed to exit grew (e.g., company that used to be $50M run-rate now needs to be a $100M run-rate…but if you make it there the payoffs are far greater).
- IPO market strong because US equities still perceived as among most reasonable risk for liquidity worldwide; bloom has come off the BRICs since 2011.
Discuss VC shift to focus on enterprise vs consumer?
- Stronger focus on how to monetize in consumer space —
- Some products becoming enterprise plays in consumer clothing (e.g. OpenTable…looks consumer-focused but really enterprise software for restaurants, who can spend the money and get companies to recurring revenues).  Smaller businesses now getting access to same quality set of tools (and high-quality UX) previously only available to large companies.
- Standard ad-supported media business is and will remain difficult.  Industries being disrupted by next wave of enterprise plays comprise 1/3 of US GSP:  health, education, retail, software.
- VCs are drawn toward enterprise companies because they are attacking fairly predictable markets with large incumbents; consumer space is far harder to predict.  Enterprise has a ‘fat middle’ where you can become $2-5B, whereas nearly all consumer plays struggle to exceed hundreds of millions, except the exceptions worth $20B.  Thus, “batting average is better in enterprise but slugging percentage is better in consumer.”
Focus for 2014?
- Revolution taking same approach: looking for new business models (usually tech-enabled) that can flourish under established industries, a la Zipcar in rental car space.
- Columbia Capital keeping focus on infrastructure (big bet on fiber) and enterprise space.  Looking at enterprise PaaS plays and cyber-security.
- Grotech: “business intelligence for the masses” (tools for small businesses).  Digital identity/wallet to enable mCommerce.  Reemergence of e-mail products that addresses longstanding shortcomings, e.g., chronological presentation.
- New Atlantic Ventures: cyber security; enterprise plays in healthcare and online education (especially big in DC area) because costs are skyrocketing.
- NEA: cluster computing revolution
2013’s most overused term, common business model and best pitch?
- Thanasis: “curated marketplace,” “ad-supported media” and Pokitdok (healthcare pricing transparency)
- Don: “big data,” “we’ll figure it out later” and RoyaltyExchange (democratize liquidity for royalties, starting with music and moving to energy)
- Arun: “SaaS,” “we’ll sell the data” and pitch was an unnamed company working on int’l money transfer they passed on
- Tige: “growth-hacking” is just silly, “transaction-based model” losing traction to subscription and pitch was for an unnamed company in the “small lending” space with a great one-sentence description
- Harry: “growth-hacking” agreement, “eCommerce” model and pitch was for company transforming Computer Aided Design software.
One start-up to watch in 2014?
- Thanasis: Quad Learning (making higher ed more affordable by enabling students to do first half at community colleges)
- Don:  Optoro (revolutionizing retail asset/inventory mgmt)
- Arun: Endgame Systems (cyber-secruity)
- Tige: Booker (scheduling platform for SMBs)
- Harry: luminal (applying bio-regeneration principles from natural world to AWS security)

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