US Tech FundsEverything you need to know

How Top US tech funding writes corporate success storiesSpecialist Article

What do companies like Facebook, Google, Groupon, Spotify, Alibaba and Dropbox have in common – apart from the fact that they are market leaders in their respective fields?

All of these companies were initially backed by Top US tech funds and grew to become industry players exceeding all expectations. During the last decades, and in parallel with global technological breakthroughs, tech funding has become a crucial means of financing for start-ups and emerging companies.

The Google case: high growth supported by top tier US tech fund guidanceTwenty-one years after Larry Page and Sergey Brin launched what is now the world’s most famous search engine, the company created by these two Stanford graduates has not only changed the world but now has a brand value of $309 billion.1 Google’s holding company, Alphabet, owns more than 200 companies, including YouTube, and is among a select few companies on the way to becoming a $1 trillion business.

Looking back to 1999, Google’s Series A round generated $25 million from top tier US tech funds Kleiner Perkins Caufield & Byers and Sequoia Capital. Incidentally, these two funds are among the most recognisable and active US tech lead investors, with long track records of successful investments which led to high-value IPOs. In the case of Google, this meant a 300x return a year after the company’s IPO in 2004, with the top tier US tech funds’ stakes worth about $4.3 billion each.2

Sources: Google; Alphabet; © Statista 2020

Figure 1: Annual revenue of Google from 2002 to 2019 (in billion U.S. dollars)

2002 2007 20122003 2008 20132004 2009 2014 20172005 2010 2015 20182006 2011 2016 2019

160.74

136.36

110.55

89.9874.54

65.6755.5150.18

37.929.323.721.816.610.66.13.21.50.4

0

25

50

75

100

125

150

175

Reve

nue

in b

illion

U.S

. dol

lars

2

1

2

Statista, 2019. Google: Brand Value 2006-2019.

CB Insights, 2019. From Alibaba to Zynga: 40 Of the Best VC Bets Of All Time And What We Can Learn From Them.

Top US tech fund backing behind driving markets forwardThe list of top tier tech fund-backed market leaders grows every year – be it Airbnb, Alibaba, Dropbox or Groupon. These businesses exemplify the role tech funding can play in different industry sectors. Airbnb, for example, was backed by top tier US tech funds including Y Combinator and Andreessen Horowitz and revolutionised its market, in this case the hospitality industry, and – irrespective of people liking it or not – created a legacy of lasting change. In this context, the growth of top tier US tech fund investments, particularly in recent years, comes as no surprise.

In addition, top tier US tech funds are actively funding emerging tech categories such as IoT, SaaS, big data and AI, which are estimated to generate 46 percent of new revenue growth in the tech sector between 2018 to 2023, according to the leading global market intelligence firm IDC.

Top US tech funding for crucial management input – and loyaltyIn the case of Google, both Kleiner Perkins and Sequoia had stipulated in their Series A investment that Larry Page and Sergey Brin bring in an external CEO. When the co-founders resolved not to do that, Kleiner Perkins partner John Doerr came close to selling his fund’s shares. However, in the end, Doerr decided it was better to try and convince the two men by introducing them to successful CEOs, not as potential candidates but as examples of how important effective leaders are for a business. Finally, Page and Brin agreed to hire Eric Schmidt as the company’s external CEO.

Under Schmidt, Google grew its revenue to more than $30 billion by the end of 2011, when Schmidt left Google. It is natural that founders hardly ever react with open arms when investors suggest they be replaced by seasoned CEOs. However, Kleiner Perkins, sticking to its belief that the company would eventually succeed and not giving up on bringing someone in with the right insight and know-how, was vital for steering Google through difficult times, including the dot-com crash, and taking it forwards to success.

There are many more examples of companies that are now household names which started out with top tier US tech fund backing. Take Facebook, whose $12.7 million Series A round in 2005 was led by two premier venture capital funds, Accel Partners and Breyer Capital, followed by Series B funding with further top tier US tech funds such as Founders Fund and Greylock Partners, one of the world’s oldest venture capital firms. Accel Partners’ investment ultimately grew to be worth $9 billion after Facebook went public, making its IX fund one of the best-performing top tier US tech funds ever.

3

New generation of investors fuelling tech financeAccording to a recent report compiled by market intelligence company Dealroom, private wealth has now become the main source of funding for European tech funds, with a fifth of fundraising by European tech fund firms in 2018 coming from family offices and private individuals, as opposed to institutional money.3 This not only reflects the rise in global private wealth from $33 trillion in 2008 to $70 trillion in 20184, but also suggests a new generation of investors who have grown up with technology firms and are more comfortable with investments that used to be deemed ‘risky’, partly also because they themselves became rich as tech entrepreneurs and are now keen on investing in others.

There may also be an increased element of purpose here which sits well with the traditional tech funding DNA – one based on strong beliefs and convictions that drive successful companies – as a younger generation of venture capital investors become interested in creating valuable companies that can affect change for good through technology, be it related to climate change or mobility. In other words, watch this space: tech funds are bound to continue writing success stories in the world of transformative businesses.

About Us

Moonfare is a private equity and alternatives investment platform focused on providing qualified professional investors access to top-tier funds. Whilst these asset classes have traditionally only been within reach of institutional investors, Moonfare’s deep private equity experience and due diligence process, coupled with platform driven onboarding and subscription, enables qualified professional investors to access funds with the potential for significant returns. Headquartered in Berlin, it currently accepts investors in the UK, Germany, Luxembourg, Switzerland, and Hong Kong.

4

3

4

Dealroom.co & Talis Capital, 2019. Private wealth & the tech sector in 2019.

Boyden, 2019. Wealth Management & Private Banking: Market Overview Q2 2019.

Disclaimer

Moonfare is a technology platform that enables individuals and their advisors to invest in top-tier private equity funds. Moonfare does not make investment recommendations and no communication, in this publication or in any other medium should be construed as a recommendation for any security offered on or off its investment platform. Alternative investments in private placements, and private equity investments via feeder funds in particular, are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. The value of an investment may go down as well as up and investors may not get back their money originally invested. An investment in a fund or investment vehicle is not the same as a deposit with a banking institution. Please refer to the respective fund documentation for details about potential risks, charges and expenses. Investments in private equity are highly illiquid and those investors who cannot hold an investment for the long term (at least 10 years) should not invest. Past performance information contained in this document is not an indication of future performance. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Forward-Looking Information must not be construed as an indication of future results and are included for discussion purposes only. Forward-Looking Information is calculated based on a number of subjective assumptions and estimates dependent on the type of investment concerned. There can be no assurance that private equity will achieve comparable results or be able to avoid losses. The performance of each private equity investment may vary substantially over time and may not achieve its target returns.

Moonfare Germany | Karl-Liebknecht-Str. 34, 10178 Berlinteam@moonfare.com

www.moonfare.com