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Military Entrepreneurs - VC investment dipped to $733M in 2016

Posted by Michael Horn on Wed, Feb 01, 2017 @ 06:41 AM

Funding your business can be a complex challenge for military veterans. There are various sources of funding available. The challenge is determining which source is the best for you. Please read on for those of you considering investors for your business. Here Urvaksh Karkaria at the Atlanta Business Chronicle describes the status of venture capital in Georgia, but the information my very well apply to your locale. As we discuss in class, Entrepreneurship for Transitioning Warriors, venture capital investment is one of the many forms of raising money that a military veteran must understand. 

Karkaria writes--Venture capital investment in Peach State companies dipped last year, but 2016 still emerged as the third best year of fundraising in the past decade.

Georgia companies scored $733.35 million in venture capital last year, down from $768.88 million the prior year, according to the MoneyTree Report published by PricewaterhouseCoopers LLP and CB Insights. The number of deals done last year dipped to 61, from 75 in 2015.

Despite the slowdown in deals and dollars invested that occurred in the second half of the year, 2016 will go down as the third best year of fundraising for Georgia companies in the past decade, noted John Nee, partner in PwC’s Atlanta technology practice.

2014 was the apex of the past decade, with $988 million in venture investment in Georgia. 2015 was the second-best year, with $769 million invested.

Nationally, venture firms invested $58.6 billion in 4,520 deals last year. That represented a 20 percent decline in dollars invested and a 16 percent drop in deals done from 2015.

Last year, nationally, there was a decline in the birth of “unicorns” (companies valued at more than $1 billion) and the funding of mega deals, Nee said.

The average VC check in Georgia last year was $12 million, compared with $10.3 million in 2015.

Interest rate hikes, combined with investors who start to weigh risk better, will lead to a new normal in 2017, said Sig Mosley, managing partner of Atlanta venture firm Mosley Ventures.

“The market will no longer tolerate growth at all costs and companies with high burn rates,” Mosley said.

M&A still may not see a big pop in the tech world in 2017, as buyers will likely continue to be choosy and wait for the “unicorn” phenomena to get repriced to more rational levels, Mosley said. The unicorns have come to represent investor exuberance in Silicon Valley and elsewhere.

“The term ‘unicorn’ was generously applied to companies until mid-2016,” Mosley said. “Now, we are seeing a list of criteria has to be checked before a company can be considered a true unicorn.”

In 2017, Mosley anticipates machine learning, Internet of Things, 3D printing-based manufacturing, and augmented/virtual reality to be hot markets for venture capital.

“Artificial Intelligence will become the ‘big data’ from five years ago — the initial massive hype will settle into real-use cases that solve real problems, versus just buzzwords flying around,” Mosley said.

Mosley expects venture firm fundraising to accelerate this year, noting several local venture firms are gearing up to raise new funds.

“Money will keep going into venture capital funds in 2017, but may calm down toward year-end,” he said. “That is when funds with track records and solid investment theses stand apart from the rest.”

Mosley Ventures invested in three new deals last year, having looked at 300 potential investments.

“We have been investing, on average, at a 100 to 1 ratio and continued seeing good deal flow in the Southeast,” Mosley said.

Venture capital firms are likely to apply the brakes in 2017, according to another Atlanta venture capitalist.

Tech company valuations, which soared to nosebleed levels in the past few years, are coming back down to earth, said Mark Buffington, managing director at BIP Capital.

About 175 unicorns emerged in the past four years, Buffington said.

“I can assure you 75 percent of those companies are not worth their billion-dollar valuations,” he said.

Re-setting valuations has had a chilling effect on limited partners (the investors in venture funds) and will likely result in a slowdown in new and follow-on investments, Buffington said.

A Trump administration could also hurt the venture capital industry. President Donald Trump wants to get rid of “carried interest,” which is how venture capital fund managers get paid.

Topics: Veteran, Entrepreneurs, Vets, VC, investors