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Robert Ackerman 2010 Ibf Opening Remarks

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Opening remarks at the 12th Annual Corporate Venturing & Innovation Partnering Conference. Presentation gives an overview of the 2009 and what 2010 has in store for Venture Capital Firms.

Opening remarks at the 12th Annual Corporate Venturing & Innovation Partnering Conference. Presentation gives an overview of the 2009 and what 2010 has in store for Venture Capital Firms.

Published in: Business, Economy & Finance

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  • 1. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Opening Remarks “I Woke Up and it Wasn’t A Nightmare After All” Conference Chairman Robert R. Ackerman, Jr. Managing Director - Allegis Capital 12th Annual Corporate Venturing & Innovation Partnering Conference February 23, 2010 www.allegiscapital.com
  • 2. 2009 – It Started Bad… The Capital Well Dried Up for Start-Ups $17.7 billion invested in 2,795 deals (1997 Level) $28.1B in 08’ and $30.5B in 07’ When Capital did Flow – It Was Very Very Expensive And the River was Damned for Venture Firms $15.2 billion committed to Venture Partnership 120 Funds Raised – 80% of them Established Players $28.5B in 08’ and $36.1B in 07’ Venture Reactions: Preserve Capital at All Costs (Life and Death) Reserves for Existing Portfolio Companies Triage to free up Capital Source: Dow Jones VentureOne/Ernst &Young 2
  • 3. … And It Did Not Get Much Better Thirteen (13) Venture-backed IPOs in 09’ (6) in 08’ -- (86) in 07’ (Average Offering: $150M in 09’) 1990-2000: 1776 IPOs: 56% of Exits 2001-2009: 405 IPOs: 13% of Exits M & A Barely Keeps Industry on Life Support 262 Venture-backed exits in 09’ (348 in 2008) Median M & A Proceeds: $30M Average M & A Deal Size: $144M 10 Year Venture Returns – The News Finally Hits 1999 “Peak Returns” about to drop from the 10-year avg. IRR 17.2% (3/31/08) IRR 19.3% (6/30/07) IRR 8.4% (9/30/09) Venture Still Out Performed Most Investment Indexes Source: Dow Jones VentureOne/Ernst &Young 3
  • 4. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Capital Investments Drop Start-Ups Just Got a Lot Harder 4
  • 5. MoneyTree Total Investments: 1980 – 2009 $ in Billions Annual Venture Capital Investments 1980 to 2009 $120 100.5 $100 $80 $60 51.3 38.6 $40 30.5 26.3 28 21 19.1 22 23 19.8 17.7 $20 14.2 10.6 7.4 2.8 2.8 2.6 2.9 3.2 3.2 3.2 2.6 2.1 3.4 3.5 3.9 0.5 1.1 1.5 $0 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 5
  • 6. MoneyTree Total Investments: Q1 2001 – Q4 2009 $ in Billions $14.0 Q1 Q2 Q3 Q4 $12.3 $10.7 $12.0 $10.0 $8.0 $7.9 $7.7 $7.7 $7.7 $7.4 $7.4 $7.3 $7.1 $7.1 $8.0 $6.6 $6.5 $6.3 $6.3 $6.3 $6.1 $5.9 $5.9 $5.9 $5.8 $5.8 $5.5 $5.2 $5.1 $5.0 $5.0 $6.0 $4.8 $4.8 $4.7 $4.4 $4.3 $4.2 $4.1 $3.4 $4.0 $2.0 $0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1284 1221 1009 990 845 856 696 728 708 743 724 792 731 865 699 853 737 839 802 830 881 980 920 965 875 1063 1011 1078 1016 1064 995 910 632 680 689 794 Number of Deals by Quarter PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 6
  • 7. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Capital Inflows Under Stress What Have You Done for Me Lately? 7
  • 8. Venture Capital Fundraising Total Number of Year First Time Funds Follow-On Funds VC Raised ($M) Funds 2004 63 155 218 19,154.4 2005 67 175 242 28,962.7 2006 56 186 242 31,964.9 2007 61 189 250 36,131.4 2008 49 174 223 28,571.3 2009 22 98 120 15,220.2 Q1’ 08 12 12 12 12 Q2’ 08 22 22 22 22 Q3’ 08 14 14 14 14 Q4’ 08 11 11 11 11 Q1’ 09 4 4 4 4 Q2’ 09 8 8 8 8 Q3’ 09 7 7 7 7 Q4’ 09 7 7 7 7 Data current as of January 11, 2010 Source: Thomson Reuters & National Venture Capital Association 8
  • 9. US Venture Capital Index (Investment Horizon Performance through 09/30/2009) For the Period 1 3 5 10 15 20 Ending Qtr. Year Years Years Years Years Years September 30, 2009 2.3 -12.4 1.3 4.9 8.4 36.6 23.1 June 30, 2009 0.2 -17.1 1.3 5.7 14.3 36.3 22.7 September 30, 2008 -2.9 -0.9 10.2 10.7 40.2 33.3 22.2 Other indices at September 30, 2009 DJIA 15.8 -7.4 -3.3 1.8 1.6 8.7 9.2 NASDAQ Composite 15.7 1.5 -2.0 2.3 -2.5 7.0 7.8 S&P 500 15.6 -6.9 -5.4 1.0 -0.2 7.6 8.0 Source: Cambridge Associates LLC Note: Because the US Venture Capital index is cap weighted, the largest vintage years mainly drive the index’s performance. PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 9
  • 10. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Where Are The $’s Going 10
  • 11. Visit www.pwcmoneytree.com for Industry definitions Investments by Industry: Full Year 2009 $ in Millions Biotechnology $3,543.3 Software $3,096.4 Medical Devices and Equipment $2,502.3 Industrial/Energy $2,304.8 # of % Change $ Media and Entertainment $1,177.0 Industry Deals from 2008 IT Services $1,076.9 Biotechnology 406 -18.57% Software 619 -39.83% Semiconductors $771.6 Medical Devices and Equipment 309 -26.58% Networking and Equipment $716.0 Industrial/Energy 232 -49.69% Media and Entertainment 251 -31.65% Telecommunications $558.8 IT Services 203 -40.80% Financial Services $364.8 Semiconductors 118 -53.10% Networking and Equipment 93 -5.27% Consumer Products and Services $362.0 Telecommunications 140 -66.56% Computers and Peripherals $341.6 Financial Services 52 -27.16% Consumer Products and Services 81 -16.87% Electronics/Instrumentation $300.5 2009 Total: Computers and Peripherals 59 -25.37% Business Products and Services $253.3 $17,680.2 million in Electronics/Instrumentation 60 -47.66% Retailing/Distribution $172.2 2,795 deals Business Products and Services 81 -47.63% Retailing/Distribution 31 -27.45% Healthcare Services $102.4 Healthcare Services 33 -43.94% Other 27 84.52% Other $36.1 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 11 Visit www.pwcmoneytree.com for Industry definitions
  • 12. Investments by Industry – Quarterly Percent of Total U.S. Investments Top 5 Industries – Q4 ‘08 to Q4 ‘09 (% of Total  Dollars) 30% 23.17% 25% 20.18% 19.83% 19.11% 19.04% 18.69% 18.38% 18.02% 17.87% 16.23% 15.95% 15.78% 15.45% 20% 14.34% 14.34% 12.52% 11.35% 10.97% 10.79% 15% 10.03% 8.75% 7.65% 7.16% 6.50% 10% 3.06% 5% 0% Biotechnology Software Medical Devices and Industrial/Energy Media and Equipment Entertainment Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 12
  • 13. Investments by Stage of Development: FY 2009 $ in Millions 2009 Total: $17,680.2 million in 2,795 deals Later Stage $5,918.9 Expansion $5,484.3 Early Stage $4,626.8 Stage of # of % Change in $ Development Deals Amount from 2008 Later Stage 799 -44.45% Expansion Stage 801 -47.23% Early Stage 883 -13.02% Startup/Seed $1,650.3 Startup/Seed 1.62% 312 Total 2,795 -36.84% $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 13
  • 14. Investments by Sequence of Financing: FY 2009 $ in Millions 2009 Total: $17,680.2 million in 2,795 deals 5th and Beyond $6,675.0 First $3,350.3 Second $2,728.8 % Change in # of Financing $ Amount from Deals Q3 2009 Third $2,594.2 5th and Beyond 807 -26.77% First 725 -44.64% Second 539 -47.37% Third 414 -40.74% Fourth 310 -28.52% Fourth $2,331.9 Total 2,795 --36.84% $0 $2,000 $4,000 $6,000 $8,000 $10,000 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 14
  • 15. First Sequence Financing – Number of Deals $ in Billions First Sequence Deals 500 384 372 400 365 334 333 333 330 327 321 299 289 283 275 273 300 264 262 259 262 253 252 237 236 230 235 224 224 217 196 184 183 188 183 176 200 168 168 159 100 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 Q2 Q3 Q4 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 15
  • 16. First Sequence Financing – Investment Amount $ in Billions First Sequence Investments $4 $2.7 $3 $2.1 $1.9 $1.9 $1.8 $1.7 $1.7 $2 $1.6 $1.6 $1.6 $1.5 $1.5 $1.5 $1.5 $1.4 $1.4 $1.4 $1.3 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.2 $1.1 $1.1 $1.0 $1.0 $1.0 $1.0 $0.8 $0.8 $0.7 $0.7 $0.7 $1 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1 Q2 Q3 Q4 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 16
  • 17. Stage of Development – Quarterly Percent of Total First Sequence Dollars (% of first Stage Development – Q4 2008 to Q4 2009 sequence dollars) 60% 48.76% 45.20% 42.75% 42.60% 50% 36.50% 40% 26.88% 30% 21.84% 21.70% 21.63% 21.35% 19.95% 19.77% 19.57% 19.35% 19.29% 19.10% 18.95% 15.86% 13.87% 20% 5.07% 10% 0% Startup/Seed Early Stage Expansion Later Stage Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 17
  • 18. Stage of Development – Quarterly Percent of Total First Sequence Deals (% of first Stage Development – Q4 2008 to Q4 2009 sequence deals) 60% 51.30% 45.83% 45.28% 44.66% 43.45% 50% 40% 30.95% 27.10% 26.42% 24.40% 23.91% 30% 19.64% 17.86% 17.39% 16.41% 14.47% 13.84% 11.83% 20% 10.12% 7.74% 7.39% 10% 0% Startup/Seed Early Stage Expansion Later Stage Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 18
  • 19. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Where’s The Action Silicon Valley Dominates, but… 19
  • 20. Investments by Region: Full Year 2009 New England Upstate NY $2,113.4 M $18.0 M 348 Deals Northwest 13 Deals 12% of US total $704.8 M 0% of US total 132Deals 4% of US total NY Metro Sacramento/N. CA $17.0 M $1,415.9 M North Central 247 Deals 8 Deals 0% of US total $368.9M 8% of US total 58 Deals Silicon Valley 2% of US total Midwest Philadelphia Metro $6,983.9 M $721.1 M $423.8 M 863 Deals Colorado 40% of US total 219 Deals 89 Deals $528.8 M 4% of US total 2% of US total 71 Deals LA/Orange County 3% of US total South Central $953.7 M $23.8 M Southwest 37 Deals DC/Metroplex 159 Deals 5% of US total $313.8 M 0% of US total Southeast $539.6 M San Diego 68 Deals $985.9 M 117 Deals $903.2 M 2% of US total 137 Deals 3% of US total 107 Deals 6% of US total Texas 5% of US total $644.6 M KAUAI 111 Deals AK/HI/PR NIIHAU OAHU 4% of US total $7.1 M MOLOKAI MAUI LANAI 2 Deals KAHOOLAWE HAWAII 0% of US total 2009 Total Investments - $17,680.2 million in 2,795 deals PricewaterhouseCoopers/National Venture Capital Association Unknown region totals not included MoneyTree™ Report based on data from Thomson Reuters 20
  • 21. Investments by Region: Full Year 2009 $ in Millions # of % Change $ Region Deals from 2008 Silicon Valley 863 -34.90% New England 348 -36.09% NY Metro 247 -28.32% Southeast 137 -19.13% LA/Orange County 159 -52.54% San Diego 107 -24.21% Midwest 219 -43.60% Northwest 132 -34.52% Texas 111 -49.94% DC/Metroplex 117 -45.20% Colorado 71 -36.84% Philadelphia Metro 89 -43.78% 2009 Total: North Central 58 -40.30% SouthWest 68 -32.71% $17,680.2 million in South Central 37 -69.76% 2,795 deals Upstate NY 13 -80.07% Sacramento/N. Cal 8 -75.33% AK/HI/PR 2 -66.22% Total 2,795 -36.84% PricewaterhouseCoopers/National Venture Capital Association Unknown region totals not included MoneyTree™ Report based on data from Thomson Reuters 21
  • 22. Investments by Region – Quarterly Percent of Total U.S. Investments Top U.S. Regions Q4 ‘08– Q4 ‘09 46.04% 50% 38.53% 38.31% 34.72% 33.71% 40% 30% 13.63% 12.94% 12.65% 12.22% 20% 11.71% 10.81% 9.29% 7.92% 6.87% 6.62% 6.05% 5.98% 5.74% 5.31% 5.08% 5.08% 4.86% 4.43% 3.37% 10% 2.71% 0% Silicon Valley New England NY Metro San Diego LA/Orange County Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters 22
  • 23. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Heading For The “Exits” No way Out 23
  • 24. Venture Capital Fundraising Total Venture- Average Venture- Total Number of Number Average M&A Date Backed Offering Backed Offering Venture-backed of IPOs* Deal Size ($M)** Amount ($M) Amount ($M) M&A Deals 2005 57 4,485.0 78.7 350 105.7 2006 57 5,117.1 89.8 375 116.0 2007 86 10,326.3 120.1 378 175.5 2008 Q1 5 282.7 56.6 108 116.3 2008 Q2 0 0.0 0.0 87 123.0 2008 Q3 1 187.5 187.5 89 96.3 2008 Q4 0 0.0 0.0 64 132.8 2008 6 470.2 78.4 348 114.9 2009 Q1 0 0.0 0.0 63 46.9 2009 Q2 5 720.7 144.1 64 197.7 2009 Q3 3 572.1 190.7 68 57.4 2009 Q4 5 649.3 129.9 67 215.9 2009 13 1,942.1 149.4 262 144.2 * Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile **Only accounts for deals with disclosed values 24 Source: Thomson Reuters and National Venture Capital Association
  • 25. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM So, What’s It All Mean… 25
  • 26. Summary Significant Reduction in the Availability of Venture Capital Start-Ups (Series A) will need to be “perfect” Valuation based upon the Net Present Value of an Identified Exit Path Smaller Funds become COOL again (tied to M & A exits) Partnering is back in vogue Start-Ups Need to Rethink their Capitalization Plans Capital Efficiency is the Watch Word Cost of Failure is Terminal Need to Rethink Distribution, Manufacturing, Go To Market Plans Leverage Leverage Leverage Venture Industry Emergence of New Industry Leaders in tune with times It remains tough until the returns are back Corporation Investors are well Positioned to “Bridge the Gap” 26
  • 27. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Looking Forward…. 27
  • 28. The VC Environment… The VC Industry In for a Period of Significant Recalibration & Restructuring (3-4 Years) Successful firms will focus on “old fashioned VC” or become Asset Managers Material reduction in the number of venture firms (30-50%?) When all is Said and Done – A Healthier Environment For Start-Up Companies Innovation is Alive and Well but the Bar for Funding is a Lot Higher Partnerships become Increasing Imperative Better Ideas, Stronger Teams, Greater Discipline will get Funded IronPort was started in 2001 and Funded by Allegis 2002: Cisco purchased in 2007 for $830M Indicators are for a Period of Greater Return and Success Corporate Venture Investors Competition continues to Accelerate Start-Up Companies are More Likely than Ever to Seek Corporate Partnerships Split Personality – Past Failures versus Future Imperatives Time to Re-Visit PARTNERING with the Experienced Venture Firms (LEVERAGE) The Window is Wide Open for Corporate Investors 28
  • 29. Planning for Success Looking to Exits – Assume there are NO IPOs You have no visibility into the next IPO market You have even less control or influence M & A remains a viable path to Liquidity – IF YOU ARE CREATING VALUE Corporate M & A Emergence of the Private Equity Buyer Control the Fundamentals for Profitable Exits Solve “Real” Problems Watch Your Cost Basis Capital Efficiency is Critical Syndicates are Essential Great Companies don’t Fail – they run out of CASH Preemptively Recapitalize When Necessary or the Opportunity Presents Itself Strong Syndicates are CRITICAL – Not all Co-Investors are Equal 29
  • 30. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Profiting from Turmoil… 30
  • 31. The Allegis Playbook… Exploit the Market Downturn with Established Companies Take Advantage of Financing Difficulties for Quality Companies Provide Capital when others Can’t Nearer term exits Actively Maintain Seed & Early-Stage Investment Focus Create “Value” from “Ideas” Control the Fundamentals for Profitable M & A exits Greatest leverage to generate returns Syndicate Leverage Corporate Partnerships Lower “GO TO MARKET” risks/costs Infrastructure to Accelerate Growth as Economies Stabilize 31
  • 32. The Allegis Playbook… Get Ahead of the Financing Crisis “Time is not your Friend” Pro-actively re-capitalize companies to strengthen syndicates “Interim” Valuations are just that - INTERIM Anticipate the Market Recovery – Don’t Wait for It What sectors remain strong (Security) Where can we improve efficiency in an existing market (Supply Chain) Where can we create value in a Down Economy “Is Now the Time to Start this Company”? Pick Your Partners very Carefully Firms and Partners are going to Disappear 32
  • 33. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM You’re Invited! 33
  • 34. Allegis Capital Annual Partnership Meeting When: May 12-13, 2010 Wednesday Afternoon: Investment Banking Panel Moderated by Pui-Wing Tam, Wall Street Journal Wednesday Evening: Networking Dinner Thursday: Portfolio Company Presentations Lunch Speaker: Chris Anderson, Author of FREE Thursday Evening: Reception Where: Ritz Carlton – Half Moon Bay Invitation: Bob Ackerman or Spencer Tall 34
  • 35. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM It’s a Great Time to Build a Portfolio! 35
  • 36. C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G TM Have a Great Conference Conference Chairman Robert R. Ackerman, Jr. Managing Director - Allegis Capital www.allegiscapital.com