In our previous piece on tech’s Unicorn VCs, we talked about two critical levers in understanding VC performance – one, a history of consistent big exits, and two, a proclivity for making early investments into these breakout companies (what we call Selection Aptitude). A lot of readers were curious about the investors who met these criteria so we decided to dig in a little deeper to see what stage they’re getting into companies and how this might be changing over time.
We used two criteria to identify the best VCs – first, they have had three or more billion dollar tech exits since 2004 in our tech Unicorn VC analysis, and second, they have received grades of “AAA” or “AA” in CB Insights’ Investor Mosaic models. These models are used by LPs to monitor and select VC firms. AAA-rated firms are the top 2% of firms and AA represent the top 10%.
With these two criteria, 12 VCs remained on the list.
We then looked at all companies these VCs first invested in each year since 2010, and broke these investments down by the stage at which their first investment was made. We also tracked the stage breakdown over the past four years to see if there has been a shift in the VCs’ focus.
Breakdown by Stage
The chart below shows the breakdown of investments made by these 12 investors since 2010 by the stage at which they were first made. Early-stage rounds, which we defined here as Seed and Series A rounds, are in shades of blue.
The investor with the highest proportion of early stage investments is Charles River Ventures, who invested in 90% of their portfolio at the Seed or Series A rounds. Closely following Charles River Ventures is Andreessen Horowitz (A16Z), with 84% of their investments since 2010 made at the early stage rounds. Interestingly, A16Z has indicated a shift away from this early stage focus. Union Square Ventures, with 74% early stage investments, rounds out the top three.
At the other end of the spectrum is Kleiner Perkins Caufield & Byers, who invested in 51% of their portfolio at the early-stage. While this includes Seed/Series A investments in notable startups like Coursera and Flipboard among others, the early-stage share of Kleiner Perkins Caufield & Byers’ overall portfolio remains lower than the other VCs on our list. Sequoia Capital and Bessemer Venture Partners round out the bottom three with 52% and 56% of their portfolio at the early-stage, respectively.
Changes in Early-Stage Investments
In addition to the overall stage breakdown, we looked at whether any of the firms is increasing or decreasing their involvement at the early stages. With many firms raising growth equity funds and the longer timeframes to exit, are the top investors shifting their investment allocation away from the early stages?
What we see among the tech VC elite is actually an increase in share going to early-stage investment. The next chart shows the change in early-stage investments (as a percentage of their portfolio for the year) from 2010 to 2013 YTD. Benchmark Capital has seen the biggest relative increase as compared to other investors. Early-stage investments comprised only 39% of their investments in 2010 versus 64% in 2013 (a 2500 basis point increase). But as can be seen below, 10 of the 12 AAA and AA-rated VCs have actually seen increases in their proportion of early stage investment since 2010 (more competition for seed VC funds potentially adding to their woes)
The two investors that are heading in the opposite direction are Union Square Ventures and Accel Partners, whose early-stage investments have seen a net change of -5 and -9 percentage points respectively. While the share of seed and Series B investments in their portfolio went up, Union Square Ventures this year saw a dip in Series A investments (55% currently from 78% in 2010). That said, Union Square Ventures remains atop the list in terms of their focus on early-stage deals (as can be seen in graph 1). Similarly, Accel Partners have made a higher proportion of mid- and later-stage (including growth equity) investments in 2013.