Silicon Valley-focussed funds still worth betting on

By Paul Mackintosh - 25/11/13
Post the Twitter IPO, venture capitalists (VCs) and financial advisors are all gung ho for tech again – with good reason it seems, at least if the latest Silicon Valley Tech Venture Capital Almanac from CB Insights is anything to go by. “The Silicon Valley tech hub is the 800 lb gorilla when it comes to both venture-backed tech financing and exit activity. Since the start of 2009, venture capital firms have deployed US$31.5 billion across 3,308 deals into Silicon Valley-based tech startups. In fact, Silicon Valley has consistently taken over 40% of venture capital deals and over 50% of funding to tech startups across seven major US venture hubs including New York and Massachusetts,” the Almanac concludes.

It’s no surprise to see Silicon Valley Bank, one of the iconic tech bubble brands and now a hardened survivor of that era, as one of the sponsors of this Almanac. The Silicon Valley ra-ra community seems well intact and voluble. The only problem with making snide comments on them is the results. “Silicon Valley companies make up over half of the top 50 largest venture-backed tech exits and the lion’s share of value as measured by exit valuation since 2012,” notes the Almanac. I see no reason to dispute these figures, however depressing they may be for innovation hubs elsewhere in the US, let alone internationally.

“VC financing is not slowing down anytime soon. 2013 is on pace for a five-year high in venture capital and funding activity, as the first three quarters of 2013 saw nearly 5% more dollars and 8% more deals as compared to the first three quarters of 2012. Of note, 3Q 2013 was the strongest quarter in Silicon Valley tech in the past five years,” the Almanac continues. Just to drive that home, that means that all the way back to 2009, we are now at the peak of VC funding.

The conclusion for any limited partner (LP) is clear. VC is still there, is still hot, has outlived the dotcom collapse, has preserved its business model (if a little battered) through the subsequent crises, and is continuing business more or less as usual, hand over fist. For anyone who can allocate to this sub-asset class, the rewards are still there – if they can manage the associated risks. And for better or worse, Silicon Valley-focussed funds are still likely to be the best way to place your bets. Something to tweet about.