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U.S. Venture Capital Investment February 2007

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  • 1. U.S. Venture Capital Investment February 2007
  • 2. U.S. Venture Capital Investment 2,425 2,422 2,454 2,328 2,219 $25.7 $23.8 $22.1 $22.4 $19.7 2002 2003 2004 2005 2006 Amount Invested ($B) Number of Deals
  • 3. U.S. Seed/First Round Investment 838 846 754 686 $5.5 $5.3 645 $4.8 $4.2 $3.7 2002 2003 2004 2005 2006 Amount Invested ($B) Number of Deals
  • 4. U.S. Venture Capital Regional Investment By Dollars Invested in 2006 All Other US Colorado 12.0% 1.8% Bay Area North Carolina 35.1% 1.9% Pennsylvania 3.7% Washington State 4.2% Potomac 4.4% Texas 4.8% NY Metro Southern 8.1% California New England 12.1% 11.9%
  • 5. 2006 Venture Capital Growth Top 5 States, 2006 versus 2005 Dollar Investment Growth Washington $239 million WA MT ME ND VT OR MN NH Northern California ID SD WI NY MA $567 million WY MI CT RI NE IA PA NJ Pennsylvania NV UT IL IN OH DE $528 million CO WV MD KS VA CA MO KY Maryland AZ TN NC $189 million Southern California NM OK AR SC $621 million MS AL GA TX LA FL Texas $176 million
  • 6. Colorado Venture Capital Investment 72 60 55 55 47 $657 $664 $464 $359 $364 2002 2003 2004 2005 2006 Amount Invested ($M) Number of Deals
  • 7. 2006 Colorado Venture Capital Financing $464 Million Invested 55 Deals Software 25% Biopharmaceuticals 13% Software 35% Biopharmaceuticals 11% Communications 7% Communications 7% Cons/Bus Products 4% Medical Devices 7% Cons/Bus Services 9% Media/ Content 2% Information Cons/Bus Electronics 5% Services 6% Products 21% Healthcare Energy 4% Services 1% Medical Healthcare Energy 1% Cons/Bus Devices 11% Media/ Services 4% Electronics Services 5% 12% Content 5% Information Services 5%
  • 8. U.S. Venture Backed IPOs 67 56 42 $5.0 $3.7 23 20 $2.3 $1.6 $1.5 2002 2003 2004 2005 2006 Amount Raised in IPO ($B) Number of Deals
  • 9. M&As Remain Primary Exit Option Percentage Breakdown of Venture Backed Liquidity Events: IPO vs. M&A 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 0% 20% 40% 60% 80% 100% IPOs M&As
  • 10. U.S. Venture Capital M&A Activity 422 407 404 383 346 $31.2 $30.1 $24.0 $13.3 $10.9 2002 2003 2004 2005 2006 Amount Invested ($B) Number of Deals
  • 11. M&A: Median Amount Paid vs. Median VC Invested ($ M) M&A Median Amount Paid Median VC Invested To Exit $52 $50 $47 $39 $25 $24 $23 $20 $21 $18 $19 $17 $0 2002 2003 2004 2005 2006
  • 12. U.S. Venture Capital Median Round Size $7.0 $6.7 $6.5 $6.0 $6.0 2002 2003 2004 2005 2006
  • 13. U.S. Venture Capital Median Pre-Money Valuation $18.8 $15.0 $13.0 $10.8 $10.0 2002 2003 2004 2005 2006 (Q1-Q3)
  • 14. U.S. Venture Capital Fundraising Commitments to Venture Capital Funds $25 $20 $18 $13 $9 2002 2003 2004 2005 2006 (Q1-Q3) Amount Invested ($B)
  • 15. PE Fundraising: Another Record Breaking Year • 2006 was another record-breaking fundraising year for PE, with LBO and mezzanine funds raising $197.6B, up 7.5% compared to 2005 when $183.8B was raised.(1) • Some were skeptical that 2006 could not reach 2005 levels, but PE firms quickly returned to the market after blowing through their last capital raise. Also, LPs increased their allocations to the asset class looking for a greater piece of the high returns.(1) • Similar to 2005, the mega-funds accounted for the majority of the funds raised. • A select group of mega funds raised during 2006 include: - Blackstone closed the largest buyout fund in history in Q3 with $15.6B in capital commitments. Blackstone soon reopened its fund to raise an additional $4B, bringing its total fund size to approximately $20B.(1) - Texas Pacific closed its fifth fund during Q4 with $15.2B in capital commitments.(1) - In the beginning of 2006, Apollo closed the first buyout fund in history over $10B when it closed its sixth fund with $10.1B in commitments. This record has since been exceeded by KKR, Blackstone, Texas Pacific and Permira.(1) • While fundraising should continue to be strong in 2007 as LPs still have plenty of cash to spend, many LPs have reached their target allocations to the asset class.(2) Sources: (1) “Another Blockbuster Year in Fundraising”, Buyouts, pg. 46, January 8, 2007; (2) “LP Appetite Holds, Though Some Start to Top Out,” Buyouts, pg. 28, January 22, 2007.
  • 16. U.S. Buyout Fundraising Since 2000* $197.6 200 $183.8** 180 160 140 in $ Billions 120 100 80 $54 60 $42 $36 40 $21 20 $10 0 2000 2001 2002 2003 2004 2005 2006 * Includes buyout and mezzanine funds Source: Buyouts, January 8, 2007.
  • 17. U.S. PE Returns Exceed Public Markets(1) (IRR %) 1 Yr 3 Yr 5 Yr 10 Yr 20 Yr U.S. Buyout All Quartile (1) 23.6 15.6 9.2 8.8 13.2 NASDAQ (1) 5.5 7.8 8.7 7.1 11.4 S&P 500 (1) 9.7 9.9 5.2 7.5 9.7 DJIA (2) 8.5 7.5 1.2 7.0 9.3 Russell 3000(2) 7.6 10.6 1.8 6.8 8.4 U.S. Buyout Top Quartile (2) 40.6 26.8 18.6 24.8 48.0 $2B + Top Quartile (3) 52.2 Sources: (1) Thomson Venture Economics, PE data as of 9/30/06 and for partnerships and investment bank affiliate or subsidiary partnerships; Bloomberg, market data as of 6/30/06; (2) Thomson Venture Economics, PE data as of 6/30/06.(3) Data as of 3/31/06;
  • 18. LPs Want a Larger Piece of PE Returns • As a result of outsized returns, pension funds have increased their average allocation to PE from 4% to 6% over the last 4 to 5 years.(1) Some have even increased their allocations as high as 10%-15%, even 16%. - Teachers’ Retirement System of Illinois increased its allocation to PE from 6% to 8%.(2) - Indiana Public Employees Retirement Fund voted to increase allocation from 5% to 15%.(2) - The Louisiana State Employees’ Retirement System doubled its target PE allocation to 10%.(3) - The Ohio Public Employees Retirement System is increasing its PE allocation from 1% to 5%.(3) - Washington State Investment Board allocates 16% to PE; Michigan and Oregon State Treasuries each allocate 15%. • As some have already met their target allocations to the asset class and some still have plenty to spend, the amount of money that will be invested in PE during 2007 may depend greatly on how much money LPs see in distributions. As distributions come in, those LPs who have fully deployed their capital will have more to invest.(4) Sources: (1) “Private Equity in 2007,” Nicholas Varchaver, Fortune, January 22, 2007; (2) “Another Blockbuster Year in Fundraising,” Buyouts, pg. 46, January 8, 2007; (3) “LPs Set Up Roomier Private Equity Allocations,” Private Equity Analyst, pg. 14, October, 2006 (4) “LP Appetite Holds, Though Some Start to Top Out,” Buyouts, pg. 28, January 22, 2007.
  • 19. Investors Increasing Already Large Allocations ($ mil) Total % To Institution Assets Allocation PE California Public Employees’ Retirement System $207,100 $12,426 6% New York State Common Retirement Fund 128,000 11,520 9% Washington State Investment Board 69,900 10,835 16% ABP Investments 209,143 10,457 5% Florida State Board of Administration 130,000 10,400 8% GIC Special Investments 100,000 10,000 10% Oregon State Treasury 56,000 10,000 15% Canada Pension Plan Investment Board 80,891 8,089 10% Ontario Teachers’ Pension Plan Board 79,241 7,924 10% California State Teachers’ Retirement System 132,000 7,920 6% Michigan Department of Treasury 50,000 7,500 15% Source: Dow Jones – Private Equity Analyst, data as of July 2006
  • 20. U.S. LBO Deal Volume Since 2000 350 $314.8 300 250 In Billions $199.4* 200 $137 150 $94 100 $42 $41 50 $24 0 2000 2001 2002 2003 2004 2005 2006 Source: Buyouts, January 8, 2007.

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