VC Survey Results January 2017
1 Mark Suster, @msuster Chang Xu, @_changxu

“It’s a great time to
be a startup raising money” 2 Mark Suster, March 2017

3 Let’s get the good
news out of the way! VCs are dramatically more optimistic about funding startups than they were a year ago. 2017 should be kind to startups raising money. Source: Upfront Ventures survey of LPs (N=82 and N=73, respectively), Jan 2017, Jan 2016 2016 2017 2% 9% 60% 9% 27% 50% 11% 32% Q. Which of the following statements best describes your personal mood heading into…? Hugely bullish Very concerned Don’t feel compelled to do deals given uncertainty Generally optimistic 2%

4 VCs are clearly more
excited about the investment environment than they were a year ago with almost no VCs expecting to cut their pace. Source: Upfront Ventures survey of VCs (N=115 and N=159, respectively), Jan 2017, Jan 2016 2016 vs. 2015 2017 vs. 2016 23% 11% 68% 66% 9% 23% Fewer new investments More new investments (excluding follow-ons) About the same pace Q. Do you think your firm is likely to make more investments in…?

VC experienced a “mild winter”
in 2016 5

6 Heading into 2016 many
VC’s had been forecasting a slower investment pace but that didn’t materialize for most with 2/3rds keeping pace or increasing investments. 31% 53% 16% More new investments (excluding follow-ons) Fewer new investments About the same pace Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Q. What was your deal activity like in 2016 vs. 2015?

7 And while valuations have
cooled off slightly it has much less significant than the industry had expected. 30% expected big drops yet only 3% have seen it. Prediction in 2016 Reflection in 2017 8% 16% 8% 73% 61% 3% 30% Increased Significantly dropped Marginally came down About the same 2017Q. Would you say valuations in 2016 were higher, lower or remained about the same vs. 2015? 2016Q. Do you expect valuations in Q1 / Q2 2016 to go up, down or remain about the same as previous quarters? Source: Upfront Ventures survey of VCs (N=115 and N=159, respectively), Jan 2017, Jan 2016

8 Amongst the more mature
startups who have raised a lot of capital VCs are clearly guiding startups to cut costs and value fiscal discipline over “growth at any cost” 2016 2017 1%4% 24% 35% 64% 62% 11% Q. Which statement best describes the spending behavior at most of the more mature companies in which you are on the board or observe? Planning to cut costs Not concerned No change Cut costs in previous 12 months Source: Upfront Ventures survey of VCs (N=115 and N=159, respectively), Jan 2017, Jan 2016

9 The biggest shift is
sentiment amongst VCs is that last year they were pushing for valuation drops. Most believe the market has normalized and don’t expect further drops. 2016 vs. 2015 2017 vs. 2016 5% 55% 8% 38% 62% 2% 30% Q. Do you expect valuations in ____ to go up, down or remain about the same? Increase Significant drop Slightly decrease About the same Source: Upfront Ventures survey of VCs (N=115 and N=159, respectively), Jan 2017, Jan 2016

10 VCs aren’t expecting 2017
to be a floodgate of IPOs for unicorns with more realistic options getting out via M&A or restructuring to become healthier businesses. 7% 8% 34% 36% 15% Many more will IPO None of the above More restructuring M&A No realistic options, will cut burn Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Q. Of the unicorns minted in the past 2-3 years, what do you think 2017 will hold for them?

11 VCs attribute the “mild
winter” to the low interest rates and also the huge influx of capital from big funds, new funds, corporate funds & foreign money. Low interest rate environment Late-stage VC funds raising larger funds Many new VC funds Increases in corporate VC arms Increases in Chinese money Increases in Sovereign Wealth Funds Increases in LPs making direct investments Mutual funds and hedge funds 14% 21% 25% 30% 32% 54% 54% 58% Note: Survey asked respondents to rate each item on a scale of 1-5. Above chart indicates percent of respondents that rated 4 (relevant) or 5 (most relevant). Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Q. In 2016 many investors warned “Winter is Coming” referring to a slowdown in venture markets. That slowdown happened but was very short lived. Which of the following are relevant in influencing why “Winter was Mild”?

VCs expect to be raising
less money themselves in 2017 12

13 2016 was a huge
year for VCs looking to raise money from LPs. Many expect 2017 will cool a bit or keep pace. Very few expect increased fund raising. (maybe it’s a good time to be raising?) :) 3% 40% 45% 13% Same as 2016 Fewer than 2016 Don’t know More Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Q. Do you expect VCs raising funds from LPs to increase in 2017?

14 Almost half of VCs
think it will be harder to fundraise from LPs in 2017 - but this is strangely at odds with what LPs told us in their surveys. 47% 48% 5% Same Harder Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Easier Q. Do you expect VCs raising funds from LPs to be easier or harder in 2017?

15 VCs who make the
effort to reach out internationally have seen a dramatic increase in interest from foreign sources of capital. Perhaps those who expect a tough 2017 should rack up some international miles? 35% 5% 60% Yes No Don’t know Source: Upfront Ventures survey of VCs (N=115), Jan 2017 Q. In the last fund you raised, did you see increased interest from international sources of capital to invest as LPs in your fund?

VC views on emerging investment
areas 16

17 Most VCs are most
excited about AI & Machine Learning as their most important investment theme for the coming 5-10 years. AI / ML IoT AR / VR Blockchain Bots-based 2% 9% 20% 9% 58% 15% 16% 23%42% 27% 30% 42% 23% 30% 8% 40% 26%33% 18% 7% 13%7%1%1% Deeply skeptical Too hyped Similar to other areas Some interesting investments Most important for next 5-10yrs Q. How do you feel about the following investment areas? Source: Upfront Ventures survey of VCs (N=115), Jan 2017 commerce

18 VCs believe there are
many near-term opportunities are in AI & Machine Learning and seem to feel AR/VC + Blockchain markets will take a bit longer to develop. AI / ML IoT AR / VR Blockchain Bots-based 45% 27%23% 54% 61% 31% 37%47% 27% 27% 15% 27% 27% 14% 9% 9%9%3%5%3% 10+ years 5-10 years 3-5 years Next 3 years Q. What do you think is the timeframe for interesting investments in the following investment areas? Source: Upfront Ventures survey of VCs (N=115), Jan 2017 commerce

How did VCs feel about
Trump — before the inauguration? 19

20 VCs we polled in
an anonymous survey were very anti-Trump. One brave soul did feel he was the right person to lead our country but then again we asked this prior to the inauguration. Nearly 75% were deeply offended or anti Trump. VCs 40%34%11%14%1% Right leader Fine, too much drama Dislike, but irrelevant Anti-Trump Deeply offended Q. How do you personally feel about a Trump presidency? Source: Upfront Ventures survey of VCs (N=115), Jan 2017

21 Two-thirds of VCs were
shared some concerns about Trump’s social policies affecting the startup ecosystem with 20% deeply worried. This was before inauguration. We imagine a re-polling on this question if done today might yield even bigger concerns. VCs 20%27%24%28%2% Right direction No impact Discourage from entering tech Concerned Deeply worried Q. How will a Trump presidency impact startup companies and tech company employment & social policies including ethnic diversity, immigration, religious tolerance, gender equality and transgender rights? Source: Upfront Ventures survey of VCs (N=115), Jan 2017

22 On policy issues VCs
overwhelming shared concerns in this survey and at the Upfront Summit in person that Trump’s policies would not be good for the technology sector. China relations Surveillance / Immigration Offshore development 3%1% 6%6% 16%9% 41% 25%17% 22% 41% 36%38% 55% 12% 30%29% 13% Very concerned Worried No impact Good Very positive Q. Do you believe a Trump Presidency could have an impact on the following areas? / manufacturing cyber security Source: Upfront Ventures survey of VCs (N=115), Jan 2017

23 However, two-thirds of VCs
polled felt that in the end Trump wasn’t likely to affect the industry too strongly. Maybe this was when we were told to “take him seriously but not literally?” Unfortunately we now need to take him literally, too. VCs 4%23%51%15%7% Very beneficial No impact Uncertainty but limited impact Concerned Deeply worried Q. Considering all these issues (offshore development, H1-B, M&A, surveillance, China relations / manufacturing, etc.), how will a Trump presidency impact venture capital? Source: Upfront Ventures survey of VCs (N=115), Jan 2017

Appendix Annual Upfront VC Survey
Participants 115 respondents in January 2017* 159 respondents in January 2016 24 * In 2017, we split out corporate VCs (CVC) into a separate survey so that we could ask a range of CVC specific questions so they weren’t included in this report.

2017 VC respondent demographics (I)
25 Fund type 0 20 40 60 Angel Seed VC (Early) VC (Mid) VC (Late) PE 1 99 38 54 2 Fund size ($ million) 0 13 27 40 $1-20 $20-100 $100-300 $300-999 $1000+ Evergreen 4 10 19 3233 17 New investments per partner per year (excl. follow-on’s) 0 17 33 50 1 2 3-4 5-10 10+ 12 26 40 34 3 Number of board or observer seats per partner 0 13 27 40 0 1-3 4-6 7-10 11-14 15+ 32 3536 32 7 Source: Upfront Ventures survey of VCs (N=115), Jan 2017

2017 VC respondent demographics (II)
26 Survey respondent geography 0 30 60 SF/Bay Area SoCal New York Boston Other US ROW 46 2 23 29 51 Position 0 40 80 120 Partner / MD Analyst to Principal Sole proprietor/personal investor 1 8 106 How long has your firm existed (years) 0 30 60 0-3 3-10 10-20 20+ 17 26 48 23 Personal investment experience (years) 0 20 40 0-3 3-6 6-10 10-15 15+ 31 18 31 25 10 Source: Upfront Ventures survey of VCs (N=115), Jan 2017

2016 VC respondent demographics (I)
27 New investments per partner per year (excl. follow-on’s) 0 20 40 60 1 2 3-4 5-10 10+ 8 38 53 50 9 Number of board or observer seats per partner 0 25 50 75 0 1-3 4-6 7-10 11-14 15+ 34 36 62 38 15 Source: Upfront Ventures survey of VCs (N=159), Jan 2016 Fund type 0 25 50 75 Angel Seed VC (Early) VC (Mid) VC (Late) PE Corp (blank) 11 96 19 47 60 7 Fund size ($ million) 0 20 40 60 $1-20 $20-100 $300-999 $100-300 $1000+ Evergreen Personal 779 28 33 47 19

2016 VC respondent demographics (II)
28 Source: Upfront Ventures survey of VCs (N=159), Jan 2016 Survey respondent geography 0 40 80 Norcal SoCal NE US Other US ROW (blank) 1 78 24 31 79 Position 0 47 93 140 Partner / MD Analyst to Principal Sole proprietor/personal investor 79 134 How long has your firm existed (years) 0 35 70 0-3 3-10 10-20 20+ 22 36 61 31 Personal investment experience (years) 0 25 50 0-3 3-6 6-10 10-15 15+ 41 23 43 30 13