Art of Healthcare in Basel…

What a remarkable time to have traveled to Switzerland and the United Kingdom. After a series of meetings with healthcare industry leaders in Switzerland and England last week, the trip put some of the raging healthcare policy debates into better context. Unfortunately, the current U.S. political situation was at times quite distracting with revelation upon revelation unfolding throughout the trip; but no less so than the debates raging around Brexit, bickering over tariffs, Europe’s own version of Russian meddling, and the “baby Trump balloon.” What a surprise to learn that the State Department had issued a travel advisory warning for Americans traveling in London of all places.

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Often U.S. politicians opposed to the Affordable Care Act point to the “single payor system” in Europe which unfortunately ignores the fact that there is not one system in Europe and that while countries like Switzerland achieve universal coverage, they do so through a mosaic of private, non-profit and for-profit organizations. There are three principle health insurance models across Europe: (i) the government manages both the insurance and provider sectors; (ii) government provides insurance but leaves the provider sector private; or, (iii) both sectors are private yet the government mandates that all citizens must have coverage. Switzerland falls into this last category.

According to the Euro Health Consumer Index (2017), Switzerland is consistently ranked second (behind The Netherlands) for quality and cost effectiveness of its healthcare system. The study concluded that there is little correlation to quality of healthcare and money spent to deliver it, but that in fact, healthcare is a “process” industry that excels with well-managed systems. Think of Swiss watches. In 2015, Switzerland spent 11.7% of G.D.P. on healthcare, notably less than the U.S. healthcare system. Switzerland has the highest percentage of nurses per thousand citizens at 17.4 (in 2013) and has 313 hospitals, underscoring the depth of commitment to a distributed care delivery system. General life expectancy is 82.6 years, which places Switzerland near the top of all countries.

Basel is an extraordinary city with a population of only 175,000, and yet, it is home to some of the largest pharmaceutical companies in the world (Novartis, Hoffman-La Roche, Ciba Geigy, Syngenta, Actelion). Much like the Kendall Square phenomenon in Boston with Harvard and Massachusetts Institute of Technology, this cluster of leading drug development companies is anchored by the first university in Switzerland which was founded in 1460 and is particularly expert in the medical and chemical sciences. Conversations with a number of these executives revealed that talent is quite mobile from company to company, and yet there is a fierce pride associated with the role these companies play in the global pharma industry.

Despite the myriad of reasons to be troubled by the situation in the U.S., my Swiss hosts were incredibly respectful (at one company I was provided a set of guidelines with the first point being “Avoid contact with chemicals.”) Notwithstanding the current rhetoric in the U.S. concerning drug pricing, one leaves with a sense that executives view this to be temporal and will not unduly impact their core programs.

In addition to the pricing concessions offered by Novartis concurrent with my trip to Europe, there were two other “medical discoveries” announced while I was there. To screaming tabloid headlines in the U.K., researchers with the Cochrane Library on behalf of the National Health Service (NHS) announced that Omega-3 and fish oil supplements are useless. Apparently, the English spend 420 million pounds on supplements annually and the NHS is worried that much of it is wasted.

Perhaps more timely, given the proclivity of the U.S. President to tweet, the Journal of the American Medical Association released a study that confirmed heavy social media use may make one twice as likely to develop attention deficit hyperactivity disorders. I better tweet that right away.

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Step on Through: Healthcare’s “Digital Doorway”

Much of the significant recent merger activity in the healthcare sector is focusing renewed attention on the role of the pharmacy and the continued “retailization” of healthcare. Last month Flare Capital announced an investment in Aspen Health which will enable pharmacists to practice to their fullest potential. Now we are excited to announce Flare’s newest portfolio company higi, a company which will further position the pharmacy and other retail settings as the “front door” to one’s healthcare journey.

Higi has built a robust national network of over 11,000 smart health stations (as well as a host of robust mobile applications), which are within five miles of nearly 80% of all Americans, and capture a wide array of biometric data including blood pressure, pulse, weight as well as survey and demographic data. They are located across 14 retail partners (pharmacies, supermarkets covering more than 50 banners) as well as on corporate campuses and in community centers. Each week there are more than one million sessions across the network or 1.7 sessions per second. Since 2012, there have been more than 271 million tests completed on the network. In 2017, there were nearly 42 million blood pressure readings. Capturing these data outside of the hospital goes a long way to closing critical gaps in care. As the Chief Medical Officer of a leading academic medical center recently observed, such a network will meaningfully reduce the nearly 40% missed readings in his hospitals which directly impact coding.

Two weeks ago, Amazon announced the acquisition of PillPack for the rumored price of $1 billion, which directly led to the cumulative loss of $15 billion of market value for the stocks of drug chains and distributors. This transaction also renewed speculation about the evolution of the healthcare retail setting, and what other services could be provided in those environments. Clearly as novel care models emerge in non-traditional settings, the role of the retailer will be a particularly powerful one.

Underlying many of these M&A transactions is the desire to own the consumers healthcare journey while capturing timely and actionable clinical data which will make the ability to manage that individual more relevant and impactful. Higi clearly addresses both of these dimensions (as do many of the other Flare Capital portfolio companies such as Iora Health, Somatus, Bright Health to name a few of our value-based portfolio companies). Higi will “meet you where you are” as the platform is integrated with over 80 devices and mobile application platforms including leading EMR and pharmacy systems.

As with the PillPack acquisition, a similar phenomenon played out last year when Amazon acquired Whole Foods for $13.7 billion and the supermarket index traded off significantly, only to recover within a few months. Interestingly, Amazon has recently introduced 10% discounts to all Amazon Prime members who shop at the 460 Whole Foods stores coupled with aggressive two-hour delivery services in certain cities. This is in addition to new stocking fees Amazon is charging suppliers holding out the promise to them to access a much deeper pool of online Amazon customers. Expect to see aggressive cross-promotional activities and more sophisticated customer segmentation of the PillPack membership base as well.

There were several other considerations which made the higi investment particularly attractive. Sessions are free to the consumer, easy to use, available 24 hours a day, and as a senior executive at a major retailer shared with me, the “stations don’t judge.” All of higi’s strategic partners benefit. Providers can extend their reach into the communities they serve and the higi network is integrated seamlessly into their clinical workflows. Payors enjoy a level of unrivaled member engagement and activation, while capturing precious clinical data, often for members who have significant chronic conditions with dynamic dosing requirements. Healthcare brands also can engage members at critical “point-of-decision” moments and can utilize the network for end-to-end communication strategies. Ultimately, higi becomes a powerful virtual primary care network, and one that has the potential to also move share of the healthcare wallet.


Additionally, the higi network has the potential to better inform and manage many of the social determinants confronting consumers. Robust survey capabilities and associated incentive programs are managed on the network. The ability to connect patients to relevant social and clinical providers is very compelling.

Consumer-centric approaches tend to win out as people simply vote with their feet. The higi network is meant to meet the consumers “wherever they are” and quite often they are at their local pharmacy or supermarket. This “digital doorway” has the great potential to influence many of the subsequent healthcare steps taken for what has been a historically challenging population to consistently engage and manage.

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Plus One – Flare Team Expands…

Investment partnerships make many decisions together – many are small and relatively inconsequently decisions while others are more profound and impactful. Together we will make dozens of investment decisions over the course of any given fund, but we will only make a few personnel decisions. So, with great anticipation, we are excited to announce that Sarah Sossong has joined Flare Capital Partners as a Principal.

For nearly two decades, Sarah has been in the middle of the transformation of healthcare, most recently as the Senior Director for the Center of Telehealth at Massachusetts General Hospital for the past six years, where she was in middle of launching several novel care delivery solutions. Previously, Sarah was managing a wide range of innovative healthcare technology projects at Kaiser Permanente for seven years. But it does not stop there: she is also super smart having graduated from Princeton University magna cum laude and then earning a master’s degree in health policy and management at the University of California at Berkeley. An amazing combination of practical work experience and academic research.

The privileged position in the venture capital industry is one of thought leadership. We want great entrepreneurs to look for us as hard as we are looking for them. Great investors provide important insights for entrepreneurs about product development roadmaps and where markets are heading, in addition to all the other roles – help recruit great executives, identify important early customers, engage other investors. Sarah’s industry breadth will push our thinking on where these markets are heading. Her depth of understanding of the emerging new business models and novel technologies that are coming to market is exceptional. She will be a lightning rod for great people and great ideas.

Please welcome Sarah to the team…

And a quick update on our Flare Scholar program which has continued to expand in exciting ways. To date, we have 65 current and former Scholars who are young healthcare technology executives and academics from across the country, all passionate about the transformation of the business of healthcare. Many of our Scholars are from our strategic investors while others are studying at leading graduate schools around the country and overseas. Serving as our “ambassadors” back on their home turfs, the Scholars assist with diligence but also identify emerging talent who may want to work in many of our portfolio companies or launch the next great start-up. Notably, five of our Scholars have joined portfolio companies in important roles and our Senior Associate, Vic Lanio, was in the great Flare Scholar Class of 2016.

Stay tuned as we continue to expand the Flare posse…

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A Pharmacist Working His Magic…

A staggering $453 billion will be spent on pharmaceutical products in 2018 in the United States per Statista analyst estimates. Ten years ago, that amount was $291 billion. With 326 million Americans, that is nearly $1,400 per capita. Into this marketplace enters Aspen Health, our most recent “semi-stealth” investment which is focused on enabling pharmacists to practice to their fullest potential.

Much has been made about the devastating opioid crisis, and appropriately so. What has come to light in this current raging debate has been greater scrutiny of the various pharmaceutical distribution channels and whether the role of the pharmacist can be expanded to play a more meaningful patient-centric role. The increased complexity of the mix of therapeutics as increasingly more of them move to biologics and specialty drugs (now 42% of pharma revenues) necessitates the need for competent clinical pharmacy practices.


Aspen Health is founded by David Medvedeff, who has an unrivaled background in the pharmacy field, having received numerous industry awards and led many of the relevant trade associations, in addition to having started multiple successful companies. David exemplifies the profile so many of the Flare Capital CEOs embody which is a profound industry depth, giving them a set of product / market insights that allow them to see around corners. Success in the healthcare technology sector is absolutely driven by CEOs who understand the “voice-of-the-customer” better than anyone else.

Another critical element of this investment, and a common occurrence in the Flare Capital portfolio, is that our co-investor is one of our strategic LPs in the fund. In the healthcare technology sector, having strategics as early stage investors can be very powerful and drive important early product revenue.

According to the Bureau of Labor Statistics and the Occupational Outlook Handbook, there are 312,500 pharmacists in the United States. This is expected to grow by more than 6% per year through 2026, driven in large measure by the rapid opening of pharmacist schools in the last decade. There are over 130 accredited pharmacist colleges in the country, graduating nearly 15,000 each year. Arguably there are now too many pharmacists entering the field. In 2017, annual compensation was $124,000 and anecdotally, new graduates are being offered starting salaries less than $100,000, causing many of them to look for other platforms to practice. The road to becoming a pharmacist is hard: four years of college, followed by four years to earn a doctorate, and then at least one to two years of residency (not counting another one to three years to receive a fellowship). And all of that just to walk into a haymaker as salaries are dropping precipitously.

Over 65% of pharmacists operate in the retail setting, while 22% are in hospitals and the balance in supply chain or on-line organizations. The acceleration into value-based contracting and supply agreements, increasingly dependent on a depth of robust data sets, underscores the complexity now in the field. The aging population and more treatments being sent directly to the home exacerbate the need for high quality, consistent pharmacy practices. Complex therapies are at risk of overwhelming the community retail pharmacist. A more dynamic and coordinated pharmacist network will help bridge gaps in care. David’s insights revolve around how best to leverage the pharmacist in this rapidly changing marketplace.




The goals to improve patient compliance, reduce medication errors and improve chronic care management are only more pressing now. Improved interoperability and more coordinated care networks allows the pharmacist to better “plug in” and serve as a cornerstone of the patient’s extended care team. And as is well-understood by all, the pharmacist continues to be the first line of contact with patients. Making that capability “always on” and of high quality is essential.

Over 130 years ago, two other pharmacists changed the world. In 1885, the young pharmacist Charles Alderton brewed Dr. Pepper in Waco, TX to drive foot traffic to his counter. One year later, John Pemberton, who was wounded in the Civil War, concocted Coca Cola in Columbus, GA as a substitute for his morphine habit. Flare Capital is excited to partner with David and the Aspen Health team as they work their magic to build an equally important (and healthier) company.

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Iora Health – Bird in Flight

Yesterday Iora Health announced the close of a $100 million growth financing. We are thrilled to be an investor in what is emerging to be the leading company in the value-based primary care space. Iora is focused on Medicare patients over 65 years of age, managing over two dozen practices nationally. The care model is incredibly compelling as it focuses on an array of both clinical and social relationships with the members. Typical care teams are comprised of a primary care provider, health coaches, behavioral health specialists, nurses, clinical team managers and operations assistants, all collaborating to care for the whole person. Iora Health’s patients experience a 40% decrease in hospitalizations and a 20% decrease in ER visits.

Arguably the US healthcare system is at a point of inflection. Yup. We have heard that many times before. But wait – this now feels different. CVS buying Aetna, Cigna combining with Express Scripts, Amazon/Berkshire/JP Morgan “alliance” (is that the right word?), Roche’s $2 billion acquisition of Flatiron Health, Humana’s acquisitions of Kindred and Curo, Apple getting back into healthcare, etc. Domestically, more is spent on healthcare than in all other countries, and despite that, Americans are experiencing consistently worse outcomes. More innovation is needed and yet it is impossible to get away from the fact that great healthcare is still very much a human-to-human interaction.

Interestingly, with each substantive change to the regulatory landscape, the venture capital industry responded. Once the ACA was introduced at the beginning of this decade, VCs invested between $1 – $2 billion in the healthcare technology sector. With Obama’s re-election and the Supreme Court rulings reaffirming the status of the ACA in 2014, there was a step-function increase in the amount of capital invested annually to between $4 – $5 billion. With greater clarity now (after a turbulent 2017), the VC industry appears to be on a $6 – $7 billion annual pace.

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One must always be careful not to generalize, but hallmarks of robust financings in the healthcare technology sector tend to include a company’s ability to lower costs in the near-term as well as generating meaningful clinical impact on outcomes in the medium-term. Driving revenues is always welcomed but great financing success stories need to without ambiguity and with full attribution knock down the first two elements: lower costs, improve health. Iora does both – without debate.

Impact can be realized along two broad dimensions: clinical and social. Some healthcare technology companies offer significant social impact with uncertain and/or unproven clinical impact (many of the B2C healthcare apps). Other companies have significant clinical impact with limited social impact (biotech and therapeutic companies). Iora is focused on both. When evaluating companies, this is an important framework against which to map opportunities. Obviously, high impact on both the clinical and social dimensions is the aspirational quadrant to be in.

There are a handful of other elements to the Iora financing which proved helpful.

  • Team: While somewhat obligatory (of course, all VCs try to back great teams), the team Rushika Fernandopulle (Co-Founder and CEO) has assembled is world-class, has worked together for years, is mission-driven and clearly can scale the company. And has not been afraid to iterate the model.
  • Role of Strategic Partners: Such a collaborative care model relies on the strength and engagement of strategic partners; in this case, the company’s insurance partners have been particularly powerful. Healthcare is a complex beast and demands a level of collaboration unseen in other industries. Assembling aligned partners is critical, and in this case, has been very differentiated in the market. In this environment, client – vendor models don’t work as well as collaborative aligned models.
  • Compelling Economic Model: Management developed an ever-improving member acquisition model, underscoring the attractive member and practice economics. The cost of the clinical care model is well understood.
  • Syndicate Strength: All investors participated in subsequent rounds, underscoring the value of having knowledgeable and well-heeled investors even in early rounds, who can support the later stage financings.
  • Broader Context: In addition to the inflection point in healthcare discussed above, there are also other emerging contextual themes which strengthened the Iora narrative. Consumerization of healthcare and the convergence of health and wealth management are all part of the broader storyline that the team was able to tell, suggesting an even larger market opportunity.
  • Cool Company Name: Ioras are a small family of four passerine bird species found in Southeast Asia, notable for their beautiful plumage and the fact that three of their toes point forward, one points backward. More interestingly perhaps, ioras have unusually thin and proportionally longer bills. Hmmm. While having nothing to do with healthcare, it always made for an interesting conversation starter.

And while I am not yet a Medicare member, I do get my care from Iora…sort of like Sy Sperling’s Hair Club for Men moment – “I am not only on the Iora board, but I am also a client…”

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Grim Reaper…

Do you know how many people died worldwide last year?

According to the Ecology Global Network, 55.3 million people died which, one might say, compares “favorably” to the 131.4 million who were born (~250 births every minute) globally. The causes of death, while numerous, provide a somewhat morbid roadmap as to where one might expect future innovation. Venture investors look for technologies that will have the greatest impact on the largest number of people (“big market syndome”). Dow Jones VentureSource reported that the two most active biotech sectors in 2017 were the immuno-system and blood categories, which together raised $5.3 billion.

In particular, biotech VCs have done a marvelous job over the last few decades backing entrepreneurs who are developing therapeutics to address many of the most prevalent diseases. And now here comes the healthcare technology sector (software and services), which saw $5.8 billion invested in 2017 per Rock Health data. The promise of these novel technologies is to better manage the contributing conditions to underlying diseases (“social determinants”) and to also provide adjunct therapies (“digital therapeutics”).


Another approach to how best frame the opportunity for VCs is whether the disease is avoidable versus unavoidable. Or communicable versus noncommunicable. Arguably, healthcare technologies should have relatively lower development costs and may have greater impact on the avoidable conditions. These technologies promise to meaningfully improve the overall healthcare system through which we all navigate, as well as modify individual behaviors that may exacerbate underlying disease conditions.

The dramatic increase in mortality rates for conditions that may, in part, be addressed by compelling new healthcare technologies now under development has not gone unnoticed either. Painfully, the devastating opioid crisis and surge in suicides has caused entrepreneurs to scramble to develop novel behavioral and addiction treatment platforms. One might hope that solutions coming to market now may turn the purple bubbles to orange, much like the biotech industry has done to a host of other diseases (see below). Interestingly, the Census Bureau blames, in part, the dramatic decline in the labor participation rate from 67% in 2000 to 63% today on the opioid crisis.

Mortality Disease

Of course, a population is not static. The United States has over 325 million people and a collective household net worth of $98.75 trillion (ratio of net worth to disposable income is 7:1). The intersection of health and wealth management is increasingly important as clearer insights emerge about the impact of wealth on health. The U.S. savings rate declined markedly from 5.98% in 2016 to 3.74% in 2017, making unexpected healthcare expenditures particularly perilous for many. The top 1% in the U.S. accounted for 39% of household net worth, according to recent quarterly Fed data (it was 30% in 1989). Clearly financial pressures will reduce investments a given population might make in its own well-being.

Frustrating to many U.S. healthcare economists is how to account for the phenomenon that the significant investment in healthcare in the U.S. is not directly leading to better relative life expectancies. Obviously, there are many confounding factors at work here (environment, diet, genetic) but one would naturally expect that a better capitalized healthcare system would generate relatively better life expectancies. More innovation will be needed to make the U.S. system more intelligent and anticipatory; that is, intervene earlier, often before there is even a specific issue (a “health expectancy” curve that measures quality of life over time is needed).


There are hidden costs with such an expensive healthcare system which are only now starting to be understood. A recent Kaiser Family Foundation survey found that of all families struggling to pay medical bills, 29% ultimately suffered a significant long-term decline in overall household income. Those reductions in income were meaningfully greater than the actual direct medical expenses incurred. Interestingly, and somewhat unexpected, MIT research published in New England Journal of Medicine determined that only 4% of household bankruptcies were due to medical expenses (common perception is that number was closer to 50%), perhaps suggesting that families will ultimately pay medical bills before other bills.

The Journal of the American Medical Association recently reported that people who lost 75% of their net worth in a two-year period were 50% more likely to pass away in the next 20 years. The cost of healthcare looms threateningly over the most vulnerable members of society, such as those who are already below the poverty line, which happens to be nearly 20% of all children in the U.S. The long-term costs to society with having one-fifth of the population at risk of growing up in poor health will be staggering. Is there a connection between the concentration of wealth and the overall health of a population? May well be.



Socio-demographics will also play a significant role over the next few decades in the general health of the U.S. population. By 2035, according to the Census Bureau, the number of people over 65 years of age will be more than half the population. By 2045, Whites will be less than 50% of the population. By 2060, there will be 404 million residents, with 17.2% being foreign-born. While population growth rates have moderated in recent years, the complexity of the population will increase, adding significant new and unexpectant pressures on the healthcare system.

Innovations in artificial intelligence and robotics should assist the broader healthcare system to improve care at lower costs. In 2016, there were 6 million consumer robots sold in the U.S.; analysts predict that number will be 42 million by 2019, many of which will have healthcare applications. It will be interesting to see when the number of robots and humans “created” each year converge. Ironically, robots have an even shorter life expectancy than humans.


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VCs Are Screwing Up Price of Australian Wool…

Against a backdrop of unprecedented global capital flows, three themes emerged in 2017 that underscored a fairly dramatic evolution of the venture capital model: (i) continued globalization of the venture industry, (ii) further concentration of capital with fewer firms, fewer portfolio companies and (iii) advent of novel cryptocurrencies. And I am pretty sure that all of this drove up the price of Australian wool by nearly 60% over the past two years.

This past year was a watershed for the US venture industry as it represented less than half of global venture capital activity for the first time ever. Notwithstanding that, it was another robust year with over $84.2 billion invested in 8,076 companies according to National Venture Capital Association (NVCA) data. While the number of companies was the lowest annual level in five years, the dollars invested was the highest amount in nearly 20 years. Quite clearly, investors are supporting existing portfolio companies with larger financing rounds. The top ten financings this past quarter accounted for 26.3% of all dollars invested yet only 0.6% of all companies – further evidence of investors “supporting their winners.”

In fact, the number of seed and angle financings has dropped by nearly 2,000 companies annually since 2015 while the level of activity for early and late stage companies has stayed relatively constant. The median age of companies at each stage of financing is meaningfully older now, in part as a result of larger round sizes providing longer runways. The average early stage financing was $6 million, which was 20% greater than the level in 2016.


2017 VC


The life sciences sector saw an extraordinary amount of activity in 2017 which was at a ten-year high with $17.6 billion (21% of total) invested in 1,046 companies (13% of total), both underscoring the capital intensity of this sector but also the greater level of investor enthusiasm around personalized medicine and a more accommodating FDA.

Globalization of the venture capital model is awkwardly juxtaposed to an administration raising trade tariffs. While the flow of goods may be more constrained, the venture model has been successfully “exported” as more than half of all venture investments were made outside of the U.S. in 2017. According to Preqin, global venture activity was $182 billion in 2017 across 11,144 companies. Case in point: in 2017 over 271 billion yen ($2.6 billion) was invested in Japanese venture deals as compared to 64 billion yen ($600 million) in 2012, per Japan Venture Research. Corporate venture programs accounted for 26% of all activity last year in Japan, increasing to 70.9 billion yen ($670 million) from a mere 1.2 billion yen in 2011. As point of reference, Japanese companies have $940 billion of cash on their balance sheets.

An important barometer as to the overall health of the venture industry involves the level of IPO activity, which surprisingly continues to be quite modest in light of strong public equity markets. Notwithstanding that there were 24 venture-backed IPOs this past quarter (and 58 for all of 2017), which was the highest level in 10 quarters, analysts had expected greater IPO activity. Twenty-one “unicorns” (companies privately valued at over $1 billion) went public in 2017 versus only 10 in 2016. Notably, in the second half of 2017, “unicorns” collectively raised $26.7 billion in private capital, continuing to avoid the public markets. Of this amount, 91% was invested in “pre-existing unicorns” versus the 9% in “first-time unicorns.”

Overall venture-backed M&A exit activity was also disappointing, yet again. According to NVCA data, there were only 769 venture-backed exits for $51 billion in value. Distributions from venture funds to limited partners declined 12.9% in 2Q17 (the most recent quarter tracked by Cambridge Associates) which was the third lowest quarter in the last five years. The larger financings referenced above allows for companies to stay private longer.


2017 Exit


The other closely watched indicator of the health of the venture market is the amount of capital raised by venture funds. In 2017, venture firms raised $32.4 billion over 209 funds (average fund size of $155 million), the lowest marks over the past four years. One might expect that as liquidity improves, venture firm’s fundraising pace will accelerate. The top ten funds accounted for nearly 75% of all capital raised yet was only 22% of the firms, rendering the average somewhat meaningless as the industry is characterized by larger multi-billion dollar, multi-sector funds that coexist with smaller specialized firms.


2017 Exit


PricewaterhouseCoopers recently reported that frenzied fundraising activity will lead to a doubling of assets managed by all private equity, hedge funds and other alternative vehicles to $21 trillion by 2025 globally, of which $10.2 trillion will be in private equity; the $10.2 trillion is equivalent to 50% of the market capitalization of the New York Stock Exchange or 100% of all publicly traded stocks in China. Today there is $1.6 trillion of committed but uninvested capital, $1.0 trillion of which is private equity.


dry powder 

Bain estimated that there was $180 billion of “public-to-private” buyout activity in 2017, which was twice the 2016 level but still only around 40% of the highwater mark of 2006, which was the busiest year ever.

Can we talk about SoftBank, which touches both the globalization and concentration themes referenced at the outset? Many believe that SoftBank’s Vision Fund is wreaking havoc on both valuations and round size. Last week, DoorDash, which had set out to “only” raise a $200 million Series D, closed on $535 million from the Vision Fund. In 2017, the Vision Fund invested $37 billion in 40 companies (44% and 0.5% of 2017 U.S. totals, respectively). Since 1995, SoftBank has lead $145 billion of investments.

Over-funding companies risks being as dangerous as under-funding companies. There are a set of product, team and commercial milestones companies typically are expected to have achieved at each round of financing. This profile tends to frame the appropriate size of the subsequent round of financing. According to Silicon Valley Bank, which looked at data from 2011-2017, the median Series D financing is just under $14 million in size, which is 1/38th the size of the DoorDash round. We have clearly entered an era when capital is aggregated around a relatively small number of companies, invested by a relatively small number of firms.

Rev run rate

Anyone with a pulse could not escape the third theme which was the explosion of cryptocurrencies. In 2017, there was $6.5 billion raised via Initial Coin Offerings (ICOs), much of that in 2H17. Notwithstanding last week’s issuance of dozens of subpoenas from the Securities and Exchange Commission and that Bitcoin has traded down 45% since its mid-December 2017 highs, there has been $1.7 billion raised in ICOs so far this year. This year 480 ICOs were launched, of which 126 closed at a median size of $12 million. Two of the ICOs – Telecom ($1.5 billion) and ($850 million) – captured most of the attention. Only four IPOs since the beginning of 2017 were larger than the Telecom ICO, which did not go unnoticed by the venture community.

Token Data tracks 902 ICOs and discovered that 142 of them failed before raising capital and another 276 failed after fundraising, for a failure rate of 46%. Less understood is what happened to another 113 ICOs that “semi-failed” and can no longer be found – they are AWOL, having ghosted their investors. determined that $233 million from ICOs were invested in projects that simply failed, while a recent MIT study estimated that there has been anywhere from $270 to $317 million of outright ICO fraud. In January 2018, the Japanese crypto exchange Coincheck was hacked for $500 million.

In other examples of the convergence of globalization and cryptocurrencies, Venezuela just launched its own state-sponsored cryptocurrency called the petro; evidently $735 million has already been sold. Go figure. Late in 2017, the People’s Bank of China shut down crypto exchanges and ICOs, given concerns over loss of state control. To all of this, Warren Buffet proclaimed last month that he would be pleased to buy put options on every flavor of cryptocurrencies out there.

Valuations are increasing everywhere you look. Even the price of a kilogram of Australian Merino wool is up nearly 60% in the last two years and now costs $14/kg. Between Australia and New Zealand, there are estimated to be 103.5 million sheep, which shockingly is nearly a 100-year low for the local sheep population. In fact, the ratio of sheep to people in New Zealand has dropped to 7:1 – it used to be 20:1 nearly 35 years ago. Given the good times, and the prevailing herd mentality (sorry), Australian wool analysts point to the fact that every venture capitalist now has added slick new Allbirds wool shoes to their uniforms (I have three pair) which is screwing up the pricing of wool.




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