United States: Venture Capital Coast To Coast - December 2014

Last Updated: December 16 2014
Article by Richard S. Grant and Steven J. Keeler


We watch venture capital quarterly trends like everybody else, and are consistently surprised by how much the "macro" statistics mask more telling "micro" or sector trends. While the 2014 Q3 news highlighted the drop in VC fundraising and investment from the prior quarter, this will still be the biggest year for VC activity since the Great Recession. Several stories within the big 2014 story have caught our eye.

Small and First-Time Fund Comeback

The median fund size raised was $119 million in the first three quarters of 2014. Dow Jones Venture Source U.S. – 3Q 2014. The number of new seed and early-stage funds, including first-time players and seed funds formed by larger VC firms, has consistently increased through the first three quarters. Although Q3 2014 fundraising was down from Q2, the number of new or first-time funds raised in Q3 increased as compared with Q2. Thomson Reuters and NVCA, Year to Date VC Fundraising Surpasses Full Year 2013 Commitment Levels.

The big story of the last decade was the contraction in the number of VC funds. But the new story may be the "bifurcation between a small number of very large venture firms who are investing funds well in excess of a billion dollars and much larger number of smaller VC firms." The Future of Venture Capital, Tech Valuations and the Fate of Tech Incumbents – Conversation with Bill Janeway, www.forbes.com. The new class of $100 million or smaller funds should increase the number of seed stage deals going forward. The first half of 2014, as compared with 2013, saw no increase in the number of seed stage deals (and they were smaller on average), with fewer (but larger) early stage, expansion and later stage deals. McGladrey Semi-Annual 2014 Venture Capital Market Trends Report.

Strategic Exits Still Rule

IPO activity has fallen in each quarter of 2014 while M&A activity for VC-backed companies set three-year records in Q1 and Q3. While the resurgence in IPOs is frequently cited as one factor in VC's historic comeback, acquisitions have accounted for more than 80 percent of VC exits since 2001, according to data from the National Venture Capital Association.

Bubble Talk

The VC media is inciting fears of a new VC "bubble." Nontraditional VC investors, including cash-rich corporates, have pushed valuations to high levels, and the public markets have helped with that push. The result has been a drop in the number of VC investment deals while total capital invested is approaching a post-2001 record. Reasonable minds can differ on whether there is a bubble building but, as PitchBook reports, the "institutionalization" of seed investing has produced more stable and "valuable" companies' raising their A, B and C rounds. PitchBook, VC Valuations & Trends, 2H 2014 Report. Valuations will eventually cycle back down just as the public markets will eventually cool. But with markedly more company and investor discipline today than was the norm in 2000, higher valuations do not necessarily portend another bubble burst.


Corporate Stars and Healthcare IT Example

You hear a lot about angels, family offices, hedge funds and, of late, even mutual funds stepping up their VC investment games. However, it is hard to overstate the importance of corporate investors to the VC ecosystem. In Q3 2014, corporate venture accounted for 10 percent of all venture dollars invested and over 17 percent of venture deals. As with VC general, corporate venture investing should set a new post-2001 record in 2014. According to CB Insights, digital health and health IT attracted $2.2 billion in the first half of 2014. This, thanks in substantial part to the likes of Google, Merck, BlueCross BlueShield and Qualcomm. Examples include Google Venture's $130 million Series B investment in Flatiron Health, Kaiser Permanente Ventures' $41 million Series B stake in Health Catalyst, and Qualcomm's $32.5 million Series C round with Telcare. Since 2010, 41 percent of corporate investments have been at the early stage and 36 percent at midstage. Corporate Investment in Digital Health & Health IT Industry Hits Record Level.


The Other California

Los Angeles and the Southern California region had the fourth-largest number of deals in Q3 (behind the Bay Area, Boston and NY) and the third-highest fundraising (beating out Boston). Dow Jones Venture Source U.S. – 3Q 2014. Increasingly, LA is now recognized as "another VC hub," next to NY, Boston and Seattle, with total dollars invested in LA up 23 percent over 2013. LA boasts well-funded companies like NantHealth, which recently raised a $250 million Series B equity round. VC Hub Battle Royale – NY vs. LA vs. Seattle vs. Massachusetts.


Ed Tech

Most of the bar and pie charts still have software and biotech at the top of VC investment activity. While companies providing technologies and services to the education sector do not often get a separate mention, we all know that, like healthcare, education is a heavily regulated sector in need of innovative solutions, which attracts many affinity or impact investors. Ed tech is more mature than sectors like clean tech and healthcare IT, so the space is more crowded. But it should continue to be a popular sector, bringing companies and investors from all over the U.S. together. Reston, Virginia-based Echo360 just raised $18 million in its latest round (bringing its total VC investment to $67 million), thanks to lead investors Duchossois Capital Management (Elmhurst, Illinois) and New Island Capital (San Francisco), who join incumbent Revolution Growth (Washington, D.C.). According to Law360, private-equity-backed Blackboard just announced that it has agreed to buy ParentLink, a provider of communication services linking school district staff to student families. www.law360.com/privateequity/articles . Ed tech deal activity has declined in 2014 from 2013 and 2012 levels as investors focus on funding existing portfolio companies and looking for new themes. Smart VCs are Getting Bearish on Ed Tech. According to CB Insights, the most active ed tech investors are transitioning to mobile language learning (e.g., Sequoia Capital and MindSnacks), teacher-student collaboration and communication (e.g., Kleiner Perkins and Remind), education and analytics (e.g., First Round Capital and Civitas Learning), coding and programming education (Greylock Partners and Treehouse), and online courses and tutorials (e.g., Andreessen Horowitz and Udacity). Where is the Smart Venture Capital Money Going in Digital Health & Health IT?


8 Steps to Keep Board Seats from Getting Too Hot

VC fund partners and company founders routinely sit on portfolio company boards of directors. Directors have fiduciary duties to all stockholders, not just themselves or their funds. Fulfilling these duties can become especially challenging during successive financing rounds and exit transactions that may impact different stockholders differently.

Here are some "best practices" that should reduce the liability exposure of directors:

  1. Act as a stockholder, not as a director. An investor can avoid director duty issues by exercising rights as a stockholder under the company's charter and stockholders agreements. In negotiating VC documents, it is therefore important to get key rights into these documents and not subject them to board votes.
  2. Make sure the corporate documents contain the maximum director protections and indemnification allowable under the law, and require the company to obtain director and officer liability insurance.
  3. Fund investors should insist that the legal documents absolve their board appointees from any obligation to make other investment opportunities available to a portfolio company or to refrain from making competitive investments.
  4. Avoid rash or rushed board decisions on significant financing or exit transactions. Prepare for and participate in board meetings.
  5. Keep adequate records and minutes of meetings describing the board's decision process.
  6. Seek the advice of attorneys, investment bankers, accountants and other experts where appropriate in connection with significant transactions.
  7. Consider having major transactions reviewed and approved by a committee of independent directors who are neither controlling stockholders nor company executives or who have no personal financial interest in the transaction.
  8. Disclose conflicts of interest and endeavor to have transactions in which one or more directors have a personal interest approved by directors who do not.

Good board practice is good risk management, and a well-functioning board should also enhance portfolio company performance and investor returns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions