A Blog by Jonathan Low


Jun 3, 2016

Who Actually Wins Venture Capital Funding?

Be smart, get lucky. It does help to be a male who graduated from a prominent university in Massachusetts or California (as opposed to dropping out), has a masters degree and started his company focused on the internet or software in northern California. And, oh by the way, it's getting harder. JL

Laurie Meisler and colleagues report in Bloomberg:

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.
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.

2016 2015 2014 2013 2012 2011 2010 2009 2008 63.3 51.3 29.8 26.5 29.8 17.3 14.7 $20.1B Total U.S. Venture Capital Funding $47.1 (est) Source: Bloomberg Reporting

What’s the path to VC cash?

For starters, it helps to be a man.
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%.
  • 141Women
  • 1,864Men
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.
  • 94Dropped out or didn’t attend college

Top U.S. undergrad schools

  • CAStanford University90
  • MAHarvard University69
  • MAMassachusetts Institute of Technology57
  • CAUniversity of California, Berkeley53
  • PAUniversity of Pennsylvania36
  • CTYale University29
  • NYCornell University28
  • NJPrinceton University26
  • CAUniversity of California, Los Angeles25
  • MIUniversity of Michigan25
…unless you’re starting a drug company.
Internet Software Biotechnology Pharmaceuticals Commercial Services Diversified Financial Services ComputersHealth-care productsReal EstateTelecommunications $28.1B$21.8$6.6$4.7$4.1$3.6$2.0$1.4$1.4$1.3 Funding ($B) Dropouts Masters MBAs PhDs Industry 9.3%4.0009. 22.2%31.120.317.925.026.531.627.522.229.7 21.2%16.712.614. 5.8%13.462.959.616.35.921.135.3041.2 There were no dropouts among the founders of pharma and biotech startups. More than half the founders in those fields have PhDs. Internet companies had the highest number of dropout founders, with Commercial Services running a close second. Diversified Financial Services had the highest number of MBAs, and the highest average funding: $188 million. Internet is second at $133 million.
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.
  • 22%of funded founders came from an international undergraduate school

Top international undergrad schools

  • IndiaIndian Institute of Technology, Bombay14
  • IsraelHebrew University of Jerusalem 12
  • IsraelTechnion-Israel Institute of Technology12
  • CanadaUnversity of Waterloo 12
  • IndiaIndian Institute of Technology, Delhi11
  • IndiaIndian Institute of Technology, Kanpur11
  • IsraelTel Aviv University 11
  • CanadaUniversity of Toronto9
  • CanadaMcGill University8
  • IndiaBirla Institute of Technology and Science7
Head West
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.
CT ME WI VT NH WA ID MT ND MN IL MI NY MA RI OR NV WY SD IA IN OH PA NJ DE CA UT CO NE MO KY WV VA MD DC AZ NM KS AR TN NC SC OK LA MS AL GA HI AK TX FL Over 31% of the biotech companies and 26% of the pharma companies on our list were launched in Massachusetts. Dallas-based Texas Instruments was once an engine of tech innovation. Now Austin leads the state in startups. High business taxes and sky-high cost of living haven’t deterred entrepreneurs from flocking to Silicon Valley. Amazon, Google and Microsoft have drawn techies to Seattle as well as good pay: the annual mean wage for computer programmers there is the highest in the U.S.* Where they went to college California 291Massachusetts 206New York 130Pennsylvania 89Texas 51 Where they set up companies California 1,135Massachusetts 274New York 213Washington 66Texas 63 * Source: U.S. Bureau of Labor Statistics In 2015, VC funding for New York companies increased 71% over 2014. Companies by State Founders by State

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.
$18,025M$3,200M$2,067M$1,993M$1,000M$1,000M$970M$725M$650M$517M$516M$500M$500M$475M$360M$360M$280M$280M$250M$246M$229M$225M$200M$185M$140M$117M$60-70M$35M$26M$17MFunding: $58MFunding: $80MFunding: $139MFunding: $91MFunding: $57.5MFunding: $79.1MFunding: $35MFunding: $30MFunding: $122MFunding: $47.8MFunding: $113MFunding: $91MFunding: $66MFunding: $48.4MFunding: $77MFunding: $32MFunding: $36.3MFunding: $34.6MFunding: $30MFunding: $68MFunding: $36MFunding: $32MFunding: $46MFunding: $64.5MFunding: $67.5MFunding: $21MFunding: $30MFunding: $46.05MFunding: $21MFunding: $20MAnnounced priceWhatsAppNest LabsZulilyOculusInstagramSprout PharmaceuticalsTwitchSeragon PharmaceuticalsAragon PharmaceuticalsDropcamCivitas TherapeuticsSkybox ImagingMaker StudiosPrecision DermatologySteelBrickTapadElasticaPaydiantToperaLumena PharmaceuticalsSciodermTendyne HoldingsLabrys BiologicsIncline TherapeuticsRempex PharmaceuticalsWhistleRockMeltBloomspotIdentifiedNess ComputingAcquiredFacebookAlphabetLiberty InteractiveFacebookFacebookValeant PharmaceuticalsAmazonGenentechJohnson & JohnsonNest LabsAcorda TherapeuticsAlphabetWalt Disney Co.Valeant PharmaceuticalsSalesforce.comTelenorBlue Coat SystemsPayPalAbbott LaboratoriesShireAmicus TherapeuticsAbbott LaboratoriesTeva Pharmaceutical IndustriesThe Medicines CompanyThe Medicines CompanyMars PetcareYahooJPMorgan ChaseWorkdayOpen TableAcquirer
*Other companies were acquired but do not have a publicly available purchasing price.
Source: Bloomberg Data
Some trip and fall.
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.
Acumen Brands$88MAereo$100MAirtime$33.3MAltius Education$27MBoulder Wind Power$43MBranchOut$49MContext Relevant$44MCustomMade$25MFab.com$336MFreeMonee Network$45MGood Eggs$52MHealthspot$33MHomejoy$38MIdle Gaming$24MKno$75MLeaf$26MMacheen$32MNebula$35MQuirky$169MSecret$34MSidecar$39MTela Bio$52MTotsy$24MViddy$36MWibiData$23M
Others go public.
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.
-100-50050100150200250Clovis Oncology+7.0Verastem-83.5TESARO+207.0Aratana Therapeutics+0.2Foundation Medicine-11.4zulily-20.9Ultragenyx Pharmaceutical+222.0Kite Pharma+172.2Roka Bioscience-94.3Pfenex+36.0Loxo Oncology+77.3Calithera Biosciences-46.7Dermira+58.1Coherus Biosciences+39.5Hortonworks-27.7Juno Therapeutics+75.4Flex Pharma-31.5Spark Therapeutics+56.0Invitae-40.4Cidara Therapeutics-16.4Seres Health+64.0Aimmune Therapeutics-19.1Global Blood Therapeutics+0.9Edge Therapeutics-25.2Pure Storage-14.4Kura Oncology-58.8Voyager Therapeutics-16.8Square+65.4Editas Medicine+106.611/1/20114/29/2016


Bloomberg collected information on U.S. companies founded between 2009 and 2015 that received $20 million or more in venture capital and other equity funding as of April 29. Companies are categorized by industry, using Bloomberg Industry Classification Standard (BICS). The graphic may not include every company founded and funded during this time period, since some companies don’t announce or publicize their funding. Similarly, sometimes company websites and promotional material do not include the names of founders who have left, so in some cases the names of all company founders may not be represented.


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