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  • The All-Important Ecosystem
  • AGENDA
      • Summary of Funding Sources in the EcoSystem
      • Impact on the Economy/Jobs
      • Fund Raising and Resources
      • Exit Scenario
      • Threats and Opportunities
    Source: Venture Impact 2009 by IHS Global Insight
  • Many Options to Choose From
    • Entrepreneur Personal Funds
    • “ Friends and Family”
    • Personal credit card and other borrowings
    • Angel investors/Angel networks/Angel funds
    • Venture capital
    • Corporate direct investment
    • Venture leasing
    • Mezzanine Financing
    • Merger and Acquisition
    • Initial Public Offering
    • Secondary/Follow-on Public Offering
    • Private Placements – Debt & Equity
    • Buyout/Acquisition Financing
    • Corporate Debt
  • What is an Angel Investor? Individual who puts own private money directly into a private business (different definitions) Type of Capital Accredited? Portfolio Company Ownership Experience of Angel ACEF Equity Required Not Family Wide Variety Mason/EBAN Equity ? ? Management or Entrepreneur Shane/SBA Debt or Equity Not Required Not Family or Friend Wide Variety Sohl/CVR/UNH Equity ? ? ?
  • Angel Groups are Small - but Important - Subset of All American Angels 4,200,000 Informal Investors 3 study estimates Investors in Angel Groups Active Angels Center for Venture Research U.S. Millionaires 1,000,000 225,000 12,000 2009 Report from Spectrem: $1 millionaires down in 2008 27%, those with $5 million down 28% World Wealth Report (Capgemini): 19% drop in HNWI and 22.8% drop in wealth in 2008
  • Why Angel Networks/Funds
    • Group of individual angel investors that recognize the value in the Power of Mindshare
      • Aggregating investment dollars
      • Aggregating knowledge, experience
      • Aggregating industry connections
      • Collective Due Diligence
    • Mitigate Risk - Diversified portfolio
    • Higher Quality Deal Flow
    • Greater Investment Clout – Strength in numbers
    • Continuity through Portfolio Management
  • Growth in Number of American Angel Groups Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)
  • Funding Gap Investment (one round) Number of Investors $5MM $10MM Seed Venture Capital GAP Funding Gap between $1,000,000 and $3,000,000/$5,000,000 (depending on region) Stage Pre-Seed Seed / Start-Up Expansion (Launch) Later (Growth) Source Friends and Family Lone Angels And Incubators Venture Capital Investment $25,000 to $100,000 $100,000 to $1,000,000 $3,000,000 and up Early Stage
  • VC Ecosystem LPs Companies Exits Distrib to LPs, GPs XYZ Ventures (“GP”, “Mgt Co”, “Manager”) XYZ Fund #1 1996 Early Stage IT $200M 5-8+ yrs
  • VC Ecosystem – One Venture Firm LPs Companies Exits Distrib to LPs, GPs XYZ Ventures (“GP”, “Mgt Co”, “Manager”) XYZ Fund #1 1996 Early Stage IT $200M 5-8+ yrs LPs Companies Exits Distrib to LPs, GPs XYZ Fund #2 1999 Early Stage IT $400M 5-8+ yrs LPs Companies Exits Distrib to LPs, GPs XYZ Fund #3 2003 Early Stage IT $300M 5-8+ yrs
  • US Venture Capital Investment in Perspective Source: AIMA, Investment Company Institute, NYSE.com, Thomson Reuters, NVCA Assets Under Management US GDP is $12.5 Trillion Venture capital = 0.2% of US GDP Billions
    • $17.60 billion
    • ~57,000 deals
    • 35% seed/startup
    • 47% early stage
    • ~ 259,500 individuals
    Angel Investors 2009
    • US$ 17.69 billion
    • ~2,800 deals
    • 9% seed/startup
    • 65% later/expansion capital
    • Total 794 firms (not all active)
    Venture Capital 2009 Sources: Center for Venture Research and PwC MoneyTree
  • The Economic Impact of Angel and Venture Capital on the US Economy ... It’s Not Just Deals and Exits! So how do we measure the results?
  • Global Insight Study
    • In 2008, venture backed companies:
      • Provided 12.05 million US jobs
      • Had sales of $2.9 trillion
        • Represents 20.5% of GDP
      • Still dominated venture-created sectors
        • 74% of telecommunications jobs
        • 81% of software jobs
        • 55% of semiconductor revenue
        • 67% of electronics/instrumentation revenue
    Source: Venture Impact 2009 by IHS Global Insight
  • Kauffman Foundation Study
    • Companies that benefited from Angel Investors: Alcoa, Home Depot, Google, Amazon (few examples)
    • Such companies are less than 1% of all companies but generated 10% of new jobs
  • JOB CREATORS
    • From 1980 to 2005 … firms less than five years old accounted for all net job growth in the United States.
    • SBA: Business Dynamics Statistics Briefing
  • Job Creators Source: Business Dynamics Statistics Briefing: Jobs Created from Business Startups in the United States. Census Bureau and Kauffman Foundation, January 2009
  • Venture Capital Investment is Productive ...
    • For VC every dollar invested in 1970-2001, there was $9.88 in US revenue during 2008
    • For every $24,564 of venture capital invested in 1970-2001, there was one job in the year 2008
    • Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on jobs and revenues. If investment 1970-2008 ($456.2B) is used, the ratios would be $6.28 and $38,606 respectively
    Source: Venture Impact 2008 by IHS Global Insight
  • Questions & Answers
  • Fundraising & Resources
  • AUM peaked at $276B, now $179B; # Firms down from 1023 peak to 794 Source: NVCA 2010 Yearbook prepared by Thomson Reuters
  • Economic Cycles Impact Both
    • Angel Investments
        • $19.2B in 2008
        • $26B in 2007
        • $25.6B in 2006
        • $21B in 2005
        • $22.5B in 2004
        • $18B in 2003
        • $15B in 2002
    UNH Center for Venture Research
    • VC Investments
    • $28.3B in 2008
    • $29.4B in 2007
    • $22B in 2006
    • $21.5B in 2005
    • $21.5B in 2004
    • $19.4B in 2003
    • $21.4B in 2002
    PWC Moneytree
  • Investment Marches On - Rumors that the Venture Industry has stopped investing are greatly exaggerated
  • VC Investment Peaked in 2000; 2008 Was Down 8%; 2009 was $18B Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters $103B $28B $18B
  • Industry Investment is in a Smaller Size Band than 2002-mid2008 Period Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  • First time venture fundings: The Industry is smaller but still funded 755 in 2009 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  • Economy Affects ACA Member Investment in 2009 Average Number of Investments Per Group 2007 7.3 2008 6.3 2009 6.3 PRELIMINARY DATA: ACA Confidence Survey, March 2010 Self reported data, not verified, still collecting data
  • Range of Performance
    • Increases in valuation (up rounds) dominated until the economic meltdown
    • Equilibrium being restored?
    Data: Fenwick & West Quaterly Survey
  • The Exit Scene - the importance of acquisitions has become clear over the past several years
  • A Capital Crisis? Few IPOS Post-Bubble; Many Good Companies in the Wings Source: Thomson Reuters/National Venture Capital Association
  • What’s in the IPO Pipeline? Dismal Short Term… Don’t confuse “uptick” with “recovery”… Source: Thomson Reuters/National Venture Capital Association – Updated 4/23/2010
  • Those Few Acquisitions Which Do Happen Are Generally Awful Source: Thomson Reuters/National Venture Capital Association – Undisclosed txns are prorated
  • Why aren’t portcos being snapped up?
    • Sure we could keep buying small companies and G.E.-ize them. But we've learned that it's better to partner with the #3 company that wants to be #1 than to buy a tiny company or go it alone
    • Jeffrey Immelt
    • CEO of GE quoted in Post-American World
  • Venture Exit Counts- IPOs and M&A by Year - 2008 is Dismal! Source: Thomson Reuters/National Venture Capital Association
  • Angels are fine with M & A Quarterly PE Exits by Corporate Acquisition, IPO and Secondary Sale Percentage of capital invested by industry
  • Performance
  • Venture Capital Returns: Still Around 20% over the long haul net to the LPs Through Q3 2009 Source: Cambridge Associates U.S Venture Capital Index ®, the performance benchmark of the National Venture Capital Association Period Ending 1 Qtr 1 Year 10 Year 20 Year 09/30/2009 (Current) 2.3% -12.4% 8.4% 23.1% 03/31/2009 (6 mos ago) -2.9% -17.5% 26.2% 22.5% 12/31/2008 (Prior) -12.5% -16.5% 35.0% 22.3% DJIA 15.8% -7.4% 1.6% 9.2% NASDAQ Composite 17.7% 1.5% -2.5% 7.8% S&P 500 15.6% -6.9% -0.2% 8.0%
  • A Word About Return Expectations
    • Angel investing is VERY risky
      • 1 or 2 of every 10 investments brings most of return
      • Hard to tell which companies will return
    • Current return estimates for portfolios:
      • Annual IRR of 27% - 2.6X in 3.5 years*
    • If business gets VC funding later, angel investment is often diluted
    • Some really great angels therefore looking for 10 to 30X potential
      • Wide variety of expectations, depending on mix of motivations to be an angel
    • Correct valuation is critical
    * Source: Rob Wiltbank, Willamette University, November, 2007 paper
  • Threats and Opportunities…. The Crystal Ball?
  • “ Buy low… sell high” is easier if you really buy low! Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters Company Total Venture Investment $M Recent Market Cap/ Acq Price $M [1/2009] Cisco 3 89,760 eBay 7 16,460 Amazon.com 8 20,550 Apple 9 71,450 YouTube 12 1,650 Google 40 90,610 JetBlue 173 1,710 WebVan 441 0
  • Key US VC building blocks ... Our Ecosystem!
    • Capital formation
      • Prudent man rule – enabled pension investment
      • LP laws
      • Capital gains tax reduction
    • Empowered entrepreneurs
      • Capital gains tax reductions
      • Stock options/team building tools
      • Reasonable bankruptcy laws
    • Protect companies – IP laws
    • Abundant customers willing to do business with SMEs
    • Exit markets – the NASDAQ
    • Face-to-face investing/proximity
    • Cultural acceptance
  • Key Policy Issues for Angels – and the Entrepreneurs They Invest in
    • Senate Financial Reform Bill
      • 1,300 page bill with two problem paragraphs
      • Increase accredited investor definition for inflation
      • Repeal Federal preemption of state regulation over “accredited investor” securities offerings
    • Federal Tax Credits for Angels
      • ACA consulted on two of three bills being drafted
    • Obama Administration Stimulus (Reduce taxes on QSBS)
      • Increase Qualified Small Business Stock exemption to 100% and extend it to more years.
  • Questions & Answers