United States: Venture Capital Coast To Coast – December 2015

Last Updated: December 9 2015
Article by Richard S. Grant and Steven J. Keeler


2015 on Pace for Big Year Despite 3rd Quarter Cooldown

VC investment slowed in Q3 2015, yet 2015 is still on track to be one of the best years in several decades. "Venture Capital Cools in Third Quarter," http://www.cnbc.com/2015/10/15/pwc-venture-capital-declines-from-record-high-levels.html (citing report by PricewaterhouseCoopers, The National Venture Capital Association and Thomson Reuters) . Later-stage investments took a larger share of funding, up 10 percent despite the 5 percent drop in funding across all stages. Major stock market averages were down about 7 percent in the third quarter. This, coupled with some 141 startups with "unicorn" valuations ($1B+ level), may be causing some investor jitters. And, of course, there is the nagging concern that IPO and strategic exits are becoming harder to come by after previous quarters with strong public market and acquisition activity.

Despite the predictable "bubble" talk and a large amount of money to be invested, 2015 has already exceeded 2014. But much of 2015's success can be attributed to large "mega-rounds" (those exceeding $100 million), which have increased 125 percent over 2014. With valuations high and more money flowing into companies than being harvested through exits, we may be seeing the end to a hot cycle for VC.

David and Goliath: Early-Stage is Tough Business

A robust VC market does not always mean easy times for startups in search of capital. As always, VC investment lags public market and exit activity declines, and most VC downturns impact early-stage investing first. Seed-stage and angel investments have dropped for the fourth consecutive quarter (now making up just 28 percent of VC fundraising). The dominant VC funds have shifted to mid- and later-stage deals. And the size of early-stage rounds continues to increase, resulting in fewer, larger deals being won by a select few startups. "Where $98 billion in VC funding is going," http://money.cnn.com/2015/10/14/technology/cb-insights-venture-capital (citing a CB Insights and KPMG report) . Software continues to dominate VC fundraising, but health IT and fintech have enjoyed several recent mega-rounds. Large addressable markets for innovation always attract investors, and the healthcare and financial sectors offer seemingly infinite growth.


Hedge Funds and VC: Masters of What Universe (or Odd Bedfellows)?

We have previously commented on the increasingly diverse universe of VC investors, from super angels and family offices to endowments and corporate VC arms. Even 401(k) managers like Fidelity, Wellington and BlackRock entered the VC scene in 2014. Hedge funds also could not resist the allure of direct investments in early-stage companies as the VC market set records in 2014. While hedge fund professionals are in a unique position to spot early-stage company opportunities, as contrasted with experienced VC fund partners, they are not necessarily astute VC investors nor able to monitor these investments. VC investing is much different from hedge fund investing: Hedge funds invest primarily in publicly traded stocks, bonds, derivatives and commodities, while VC funds provide capital to grow companies. And hedge fund investments are generally liquid, while VC investments often are long-term opportunities. VCs earn management fees and "carry" based on a "hurdle rate" concept, while hedge fund managers charge fees based on net asset values and a "high watermark" concept. So hedge fund success with VC investing will likely require that they hire VC talent to manage their investments.

Dallas-based Maverick Capital followed the lead of other prominent hedge funds when it raised a $500 million VC fund in early 2014. "Hedge Funds Add to Venture-Capital Bounty," http://www.wsj.com/articles/hedge-funds-add-to-venture-capital-bounty-1414021436 . Tiger Global Management had already shifted most of its business from managing hedge funds to venture capital funds, and Coatue Management and Valiant Capital Management had also become active in VC. As contrasted with opportunistic direct investments in the occasional unicorn, raising a separate VC fund can allow a hedge fund to hire experienced VC talent to properly manage VC investments. And while hedge funds usually make money by being stock market contrarians, they are definitely following the crowd when it comes to VC investment. Maverick's VC fund is focused on software and healthcare, two of the hottest VC sectors throughout the most recent VC heyday.

So is the Wall Street creep into VC a short-term phenomenon and how will it impact the VC industry? We hear many VC funds say that, to compete with these big players, they will look to invest earlier in companies to gain a foothold. Many believe that hedge-fund-sponsored VC funds will eventually start shying away from the later-stage companies due to concerns over inflated valuations. It remains to be seen whether they will fill in the increasing gap in early- and mid-stage funding, as that might require a certain expertise not typically associated with hedge fund investments. And are hedge funds good investment partners for a startup? Some entrepreneurs view VC funds as better and more patient long-term partners and fear that hedge funds will prove to be less loyal, "fair-weather" friends. One thing is clear: Hedge funds and other Wall Street investors have played a significant role in VC's 2014 and 2015 success and, perhaps, in the huge valuations that now have investors considering a more conservative posture.


Oh Atlanta!

In July 2015, we read a post by VC fund Mosley Ventures titled "Atlanta Hailed as Silicon Valley of the South." www.mosleyventures.com/new/atlanta-hailed-as-silicon-valley-of-the-south. There may very well be a case for designating Atlanta as the new "Valley." In addition to being the headquarters for major corporations in many industries, including computing, sports, media and travel − think Turner (CNN), Coca Cola, Equifax, SunTrust, First Data and Delta − Atlanta has an exceptional talent pool of engineers. And it has fostered an "entrepreneur-first" culture, thanks to the Atlanta Tech Village, its affiliate the Atlanta Ventures Accelerator, and their local backers, Atlanta Ventures and Buckhead Investment Partners. Not to mention the difference one man can make – namely Sig Mosley, the founder of Atlanta-based VC fund Mosley Ventures.

Thanks to Atlanta's formidable VC community, including Georgia Tech ("Stanford of the Southeast"), First Data, Moseley Ventures and D.C.-based Kinetic Ventures (which also has an Atlanta office), Georgia has a significant number of companies in the information security industry. And it appears that much of the local money is invested at home in Atlanta. Mosley is focused on early-stage startups in Atlanta and the Southeast. It invests in security software, mobility and wireless, big data and healthcare IT. Like the household names of VC investing in the Silicon Valley, Moseley and Kinetic understand that data and communications will continue to be the focus of innovation in every industry. And Atlanta has proven itself a worthy location for any technology or software company.

Atlanta is undeniably a major metropolitan and cultural center in the U.S. Its good climate and relatively low cost of living combine with an entrepreneurial and "hip" subculture, which attracts the occasional immigrant from California or Boston. And, increasingly, Valley, Boston and New York-based, top-tier funds are investing in Atlanta startups. While Atlanta will have to compete hard with Silicon Valley, Boston and New York for a robust supply of angel and second-tier VC investors, Atlanta could very well continue to grow into a robust and active VC community.


Cybersecurity and Big Data: The New VC Darlings

As lawyers, we witness firsthand the enormous demand from businesses and institutions to manage data privacy. CB Insights reports that over $7 billion has been invested in cybersecurity in the last five years, with the biggest year-over-year increase occurring in 2014. "Cybersecurity Financing and M&A Trends," www.cbinsights.com. Recent cybersecurity IPOs have included Palo Alto Networks, FireEye (backed by Sequoia Capital and Norwest Venture Partners), and NQ Mobile, and SAFENet, Trusteer and AirWatch (backed by Insight Venture Partners and Accel partners) were among some of the successful M&A exits. Google, McAfee, Symantec, Cisco Systems and IBM top the list of strategic buyers of cybersecurity companies, with Microsoft and Intel not far behind. And the top 10 VC investors have followed suit.

Cybersecurity provider (and now unicorn) Tanimum Inc. raised $120 million in Q3 2015 in funding led by TPG Growth, due in no small part to increasing media attention surrounding data breaches. Andressen Horowitz had led Tanimum's 2014 and early 2015 rounds. http://www.law360.com/privateequity/articles/698324?nl_pk . In July 2015, Google Capital led a $100 million round for CrowdStrike Inc.

Data "mining" or analytics solutions companies are also attracting VC. So far in 2015, cloud-based business management platform provider Domo raised $200 million in Series D from BlackRock and others, and Sumo Logic, a data analytics platform provider, raised $80 million in Series E from a club of investors including DFJ Growth, Greylock Partners, Sequoia Capital and Accel Partners. Other "big data" startups raising money in 2015 include MarkLogic, Banjo, Snowflake Computing, Saama Technologies and Guavus. Big data exits have included MasterCard's purchase of cloud-based analytics provider Applied Predictive Technologies, Microsoft's acquisition of mobile business intelligence provider Datazen, and Twitter's purchase of machine learning startup Whetlab. Newer data solutions companies Lyra Health, Maana and Massive Analytic have each raised seed or Series A rounds in 2015. And these are only a handful of the newest data analytics and management companies receiving significant venture investment or experiencing significant exits in 2014 or 2015. "What's the Big Data – Big Data Startups," http://whatsthebigdata.com/big-data-startups/. We expect growth in this sector to continue, given the growing importance of cybersecurity and big data solutions to numerous other industries.


Protect Your IP: Simple, Cost-Effective Tips for Early-Stage Companies

Many early-stage companies do a terrific job at seeing the big picture: Founders have an excellent vision for the enterprise, know what needs to be done long-term to execute on their business plan, and are vigilant in courting investors and understanding the market for capital. But sometimes small but important details can get lost in the shuffle. One of these details is intellectual property. In the early stages of a company's life, IP can seem insignificant, yet IP ownership can be critical to the life of a company over the long term.

Patents, trademarks and copyrights are the lifeblood of many startups. Patent protection is the most complex and, as a result, will be the subject of a future post. But trademarks and copyrights − words, symbols, logos and the like (trademarks) and computer software and other creative expression (copyright) − can be just as important. We offer a few simple tips that every startup should follow. None of these require significant financial investment, although failing to take these precautions can be costly down the road.

  • All employees should sign "work for hire" agreements in order to ensure that all their work product belongs to the company.
  • Arrangements with consultants should also be documented to reflect that their work product is being created for the company's benefit and is owned solely by the company. We've seen many situations where third parties are engaged to consult on software development, without an appropriate agreement in place to ensure that the company is the sole owner and beneficiary of the work product.
  • Employees and consultants should sign confidentiality agreements. Although these agreements do not necessarily provide trademark or copyright protection, they can ensure that company secrets are protected from disclosure to competitors, and make employees think twice about taking valuable information to a competitor.
  • A company's name and brand can be critically important to its value. Each company should strongly consider engaging an expert to undertake a trademark search of its name and analyzing any potential conflicts with existing companies.
  • Along with trademark searches, companies should consider the value of protecting trademarks through formal federal trademark registration.

These are simple, cost-effective steps that all early-stage companies can easily follow, and VCs and other investors will appreciate and value the diligence and attention to detail.

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