Venture Capital Funding in Today’s Marketplace

                April 26, 2010



   Expertise. Discipline. Results.




 ...
About Cascadia Capital




          2
Investment Bank Serving Emerging Growth & Middle Market Companies

    Cornerstones of Cascadia Capital
   Deep Domain Ex...
Full Service Firm


                    Representative Services                             Select Recent Transactions



...
Information Technology Practice Overview
    Cascadia’s Information Technology Practice operates a Thematic Business Mode...
Market Overview




       6
The Markets Are Recovering


 The financial and economic downturn of 2008 caused a hiatus in both
  M&A and Financing mar...
Technology M&A


                  4,500                                                                  $500

          ...
Technology M&A by Industry, LTM 3/31/10
                                                               Internet content & ...
Venture Capital Fundraising


                         300                                                                ...
Venture Capital Returns vs. Stock Market Indices

         40%


         30%
                                            ...
Venture Capital Activity


                    4,500                                                                      ...
Venture Capital Activity by Stage of Development
                                                   Startup/Seed          ...
VC Activity by Industry, LTM 3/31/10

                                                                                    ...
Median Pre-Money Valuation by Series
                                         Series A Financings                         ...
Public IT Company Valuations are Increasing
                                                  Leading Platforms           ...
Selected Software M&A Activity
     Date                                                                                  ...
Selected Software Equity Private Placement Activity
   Date                                                               ...
Expertise. Discipline. Results.




         Columbia Center
        701 5th Ave, Ste 2600
         Seattle, WA 98104
   w...
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Hughes Media Law Presents: Cascadia Capital - Venture Funding In Today's Market

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Hughes Media Law Presents: Cascadia Capital - Venture Funding In Today's Market

  1. 1. Venture Capital Funding in Today’s Marketplace April 26, 2010 Expertise. Discipline. Results. Columbia Center 701 5th Ave, Ste 2600 Seattle, WA 98104 www.cascadiacapital.com
  2. 2. About Cascadia Capital 2
  3. 3. Investment Bank Serving Emerging Growth & Middle Market Companies Cornerstones of Cascadia Capital  Deep Domain Expertise  Investment Banking Expertise  Strong Relationships  Industry group heads have  Seasoned team from top-tier  Dedicated coverage effort of unique insight from actually investment banks private equity firms, hedge funds working in their industries:  Nationally ranked investment and VCs - Managing companies banking practice – consistently  Active dialogs with leading - Acquiring/selling among the top 10 investment banks companies and consolidators businesses in the country for completed within the relevant industries - Raising capital transactions  Unique relationships with top - Selling to accounts  Over a $1 billion of capital raised executives across all industries - Venture startups  Over a $1 billion of M&A deals completed Services Offered Mergers & Acquisitions Corporate Finance Strategic Advisory Industry Focuses Emerging Growth Communications IT Internet New Media Sustainable Industries Middle Market Business Services Consumer Distribution Industrial 3 3
  4. 4. Full Service Firm Representative Services Select Recent Transactions  Sell-side representation Mergers &  Buy-side representation Acquisitions  Minority & majority recapitalizations  Management buyouts  Over $660m of recent transactions  Private equity placements Corporate  Debt financings Finance  Public company capital raises  Strategic financings  Over $500m of recent transactions  Restructurings Strategic  Shareholder value analysis Advisory Services  Corporate valuations & fairness opinions  Public company takeover defense services 4 4
  5. 5. Information Technology Practice Overview  Cascadia’s Information Technology Practice operates a Thematic Business Model that allows the firm to uniquely deliver technology domain expertise making up the Information Technology landscape  Cloud Storage  Data Center Automation  IT Performance Management  IT Security  Governance, Risk and Compliance (GRC)  Virtualization  E-Commerce Infrastructure  Enterprise and Web Content Management  Internet and New Media  Broadcast Technology  Legal Technology  The Thematic Business Model drives the four fundamental aspects that are all critical to the successful operation of Cascadia’s Information Technology Practice:  Strong Domain Expertise  Comprehensive Understanding of Technology Market Dynamics  Deep and Broad Relationships with Technology Strategic Buyers and Financial Sponsors  Extensive Technology Deal-making Experience 5
  6. 6. Market Overview 6
  7. 7. The Markets Are Recovering  The financial and economic downturn of 2008 caused a hiatus in both M&A and Financing markets throughout most of 2009  Large acquirers focused on controlling internal costs  Venture Capitalists focused on making sure that current portfolio companies remain afloat and were hesitant to put money to work in new ventures until the economic situation stabilized  The markets have been improving since Q4 of 2009  Market reached it’s bottom in Q3 of 2009 and a rebound is underway  Pickup in both M&A and Capital Raising activity  However, activity is still below 2006 and 2007 highs 7
  8. 8. Technology M&A 4,500 $500 4,000 $450 $457 3,500 $432 $400 Dollar Volume (Billions) $350 3,000 $373 Deal Volume $300 2,500 $301 $250 2,000 $254 $200 1,500 $150 $173 1,000 $152 $100 500 $50 3,040 4,029 3,640 3,014 3,024 2,838 3,205 0 $0 2005 2006 2007 2008 2009 LTM LTM 3/31/2009 3/31/2010  Technology M&A activity has begun to rebound but still below 2006 levels 8 Source: The 451 Group
  9. 9. Technology M&A by Industry, LTM 3/31/10 Internet content & commerce IT services & distribution Application software IT outsourcing 2% Communications services 3% 3% 19% Semiconductors 3% 4% Mobility Infrastructure management 4% Hosted services 4% Information management Systems 17% 5% Carrier infrastructure Security 5% Enterprise networking Media technologies 6% Storage 7% 16% Energy & power Environmental footprint  Internet, IT Services and Application Software Data centers & facilities lead the way as the most active sectors within IT Non-tech sectors Technology portfolio investors 9 Source: The 451 Group
  10. 10. Venture Capital Fundraising 300 $40 $35 250 $36 $30 $32 Funds Raised (Billions) 200 Number of Funds $29 $29 $25 $27 150 $20 $15 100 $16 $14 $10 50 $5 243 243 253 270 162 252 137 0 $0 2005 2006 2007 2008 2009 LTM LTM 3/31/2009 3/31/2010  Venture Capital fundraising has declined as Limited Partners reallocate their portfolios  However, plenty of dry-powder remains on the sidelines 10 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  11. 11. Venture Capital Returns vs. Stock Market Indices 40% 30% US Venture Capital Index, 9/30/2009 20% DJIA 10% NASDAQ 0% S&P 500 -10% -20% Quarter 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years  Venture capital returns have outpaced stock market indices over the long term  Venture capital valuations move directionally with the public markets; fund managers base their valuations on a wider range of factors than just the public markets, thereby reducing the near-term volatility of VC returns relative to stock market indices 11 Source: Cambridge Associates LLC
  12. 12. Venture Capital Activity 4,500 $35 4,000 $30 3,500 $30 Dollar Volume (Billions) $28 $25 3,000 $26 Deal Volume $24 2,500 $23 $20 $19 2,000 $18 $15 1,500 $10 1,000 $5 500 3,209 3,746 4,027 3,994 2,868 3,609 2,914 0 $0 2005 2006 2007 2008 2009 LTM LTM 3/31/2009 3/31/2010  Deal volume is increasing as the economy stabilizes and VCs regain comfort in the market  Levels still 25% below 2007 and 2008 highs 12 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  13. 13. Venture Capital Activity by Stage of Development Startup/Seed Early Stage 600 $2.0 1,200 $6 500 1,000 $5.7 $5 $1.8 $5.3 Dollar Volume (Billions) Dollar Volume (Billions) $1.6 $1.7 $1.5 $4.9 400 800 $4.7 $4.7 $4 $1.5 $1.5 Deal Volume Deal Volume $4.3 $3.9 300 $1.2 $1.0 600 $3 $0.9 200 400 $2 $0.5 100 200 $1 251 381 488 499 331 430 348 848 970 1,065 1,072 907 1,008 941 0 $0.0 0 $0 2005 2006 2007 2008 2009 LTM LTM 2005 2006 2007 2008 2009 LTM LTM 3/31/2009 3/31/2010 3/31/2009 3/31/2010 Expansion Later Stage 1,600 $12 1,400 $14 1,400 1,200 $12 $11.3 $10 $11.2 Dollar Volume (Billions) Dollar Volume (Billions) 1,200 $12.0 $10.3 1,000 $10 $8 $10.8 Deal Volume Deal Volume 1,000 $8.6 $7.9 800 $9.5 $9.6 $9.5 $8 800 $6 $6.4 600 $6 600 $5.5 $4 $6.0 $6.0 400 $4 400 $2 200 $2 200 1,111 1,375 1,277 1,222 823 1,058 872 999 1,020 1,197 1,201 807 1,113 753 0 $0 0 $0 2005 2006 2007 2008 2009 LTM LTM 2005 2006 2007 2008 2009 LTM LTM 3/31/2009 3/31/2010 3/31/2009 3/31/2010 13 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  14. 14. VC Activity by Industry, LTM 3/31/10 Software Biotechnology Medical Devices and Equipment 2%2% 2% Media and Entertainment 2% 22% 3% Industrial/Energy 3% IT Services 4% Telecommunications Semiconductors 5% Consumer Products and Services Networking and Equipment 15% Electronics/Instrumentation 7% Business Products and Services Financial Services 9% 11% Computers and Peripherals 9% Healthcare Services Retailing/Distribution  Software, Life Sciences and Media lead the way as Other the most active sector within IT 14 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
  15. 15. Median Pre-Money Valuation by Series Series A Financings Series B Financings $8 $7.3 $7.0 $30 $6.7 $24.4 $7 $23.0 $25 $6 $5.2 $19.8 $20.0 $5.0 $20 ($ millions) ($ millions) $5 $15.3 $4 $15 $3 $10 $2 $5 $1 $0 $0 Q1 - Q3 Q4 Q1 - Q3 Q4 2006 2007 2008 2009 2009 2006 2007 2008 2009 2009 Series C Financings Series D of Higher Financings $60 $90 $80.0 $51.9 $80 $71.0 $70.0 $50 $43.0 $40.0 $70 $40 $60 ($ millions) ($ millions) $28.0 $30.0 $45.0 $50 $30 $35.2 $40 $20 $30 $20 $10 $10 $0 $0 Q1 - Q3 Q4 Q1 - Q3 Q4 2006 2007 2008 2009 2009 2006 2007 2008 2009 2009  Pre-money valuations have bottomed out in 2009 and there are signs that valuations are improving 15 Source: The Venture Financing Report, Cooley Godward Kronish LLP, February 18, 2010
  16. 16. Public IT Company Valuations are Increasing Leading Platforms SaaS / On-Demand (HPQ, IBM, MSFT, ORCL and SAP) (CRM, CNQR, SFSF, ATHN, and others) 6.0x 12.0x 10.2x 4.8x 4.4x EV / LTM Revenue EV / LTM Revenue 5.0x 4.0x 4.0x 10.0x 3.9x 7.4x 3.5x 3.5x 3.6x 3.5x 3.5x 7.2x 6.9x 4.0x 2.9x 8.0x 6.1x 5.9x 5.5x 2.5x 2.3x 3.0x 6.0x 3.8x 3.6x 4.0x 3.1x 2.0x 4.0x 2.2x 2.3x 1.0x 2.0x 0.0x 0.0x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010 2007 2008 2009 2010 Application Software Infrastructure Software (SGE, TDC, OTEX, CVG, and others) (CSCO, EMC, VMW, SYMC, and others) 3.0x 4.0x 2.5x 2.4x 3.2x 3.4x 2.2x 2.2x 3.5x 3.1x EV / LTM Revenue EV / LTM Revenue 2.5x 2.0x 2.8x 1.8x 1.8x 3.0x 2.4x 2.4x 2.0x 1.6x 1.6x 2.3x 2.2x 2.5x 2.1x 1.3x 1.9x 1.8x 1.2x 1.6x 1.5x 1.5x 2.0x 0.9x 1.0x 1.5x 1.0x 1.0x 0.5x 0.5x 0.0x 0.0x Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010 2007 2008 2009 2010 16 Source: CapitalIQ
  17. 17. Selected Software M&A Activity Date Deal Deal Value/LTM Announced Acquiror Name Target Name Target Business Description Value($mm) Revenue EBITDA 04/16/10 Oracle Phase Forward Provides clinical trial electronic data capture and management software $755.4 3.3x 24.6x 03/29/10 HgCapital StepStone Solutions Provides employee recruitment management software 146.6 2.0 - 03/26/10 Thoma Bravo PLATO Learning Provides K-12 educational curriculum planning, management and assessment software 143.0 2.7 12.0 03/19/10 Morningstar Realpoint Provides online credit data rating, analysis and surveillance services 52.0 4.3 - 03/10/10 CA NimSoft Provides business service management , network performance and availability monitoring software 350.0 10.9 - 03/01/10 MSCI Barra RiskMetrics Group Provides risk management, governance, financial analytics and wealth management software 1,611.8 5.3 16.3x 02/22/10 Iron Mountain Mimosa Systems Provides content archiving solutions for information immediacy 112.0 - - 02/09/10 Bentley Systems Enterprise Informatics Provides enterprise content management GRC software - - - 01/04/10 EMC Archer Technologies Provides enterprise governance, risk and compliance (GRC) software 175.0 5.8 - 12/01/09 Vista Equity Partners Intuit (Real estate business) Provides rental property management software for the real estate sector 128.0 1.7 - 11/05/09 JDA Software Group i2 Technologies, Inc. Provide collaborative supply-chain management (SCM) software 561.4 2.4 11.2 09/16/09 IHS Inc. ESS Provides EH&S and crisis management sustainability software 59.0 3.0 - 09/14/09 CA Inc. NetQoS Provides application and network performance and optimization software 200.0 3.6 - 09/10/09 Trustwave Vericept Provides anti-data leakage software 20.0 2.0 - 08/31/09 Actimize, Inc. Fortent Provides anti-money laundering, compliance mgmt. and anti-fraud software 73.5 2.5 - 08/27/09 PSI AG Advanced Information Systems Provides planning, procurement and supply chain management software 18.0 1.1 7.9 08/17/09 Jack Henry & Associates Goldleaf Financial Solutions Provides back office software for banks 61.1 0.8 - 07/30/09 McAfee MX Logic Provides email filtering, web filtering and email archiving software 140.0 4.0 - 07/27/09 IBM SPSS Provides predictive analytics software and solutions 1,120.1 3.8 14.3 07/17/09 Hewlett-Packard Ibrix Provides enterprise file systems and storage software - - - 07/13/09 Software AG IDS Scheer AG Provides business process management solutions 554.1 1.0 15.5 06/01/09 EMC Data Domain Provides de-duplication data backup and recovery hardware and software 2,345.0 7.4 79.4 05/27/09 EMC Configuresof Provides continuous compliance and configuration management SaaS 95.0 3.2 - 05/13/09 Oracle Virtual Iron Software Offers server virtualization software for small and medium-sized companies - - - 04/12/09 Thoma Bravo Entrust Develops solutions for securing digital identities and information 96.4 1.0 13.4 03/23/09 Oracle Sun Microsystems Provides network computing infrastructure solutions worldwide 7,400.5 0.6 10.8 02/13/08 HarbourVest & Thoma Cressey Flexera Software Provides software management solutions 200.0 1.8 - 02/04/09 Oracle mValent Provides application configuration management software solutions - - - 01/23/09 Verisign Certicom Corp Provides cryptography solutions for software vendors 74.6 2.0 NM 01/22/09 Autonomy Interwoven Develops content management software solutions 751.6 2.2 12.7 01/20/09 Riverbed Technology Mazu Networks Offers business optimization solutions to IT organizations 47.0 - - 01/07/09 Acresso Software Intraware Provides solutions for digital asset delivery and management 44.6 2.5 NM 01/07/09 Sun Microsystems Q-layer NV Provides datacenter and storage virtualization software - - - 01/05/09 Mastercard Incorporated Orbiscom Limited Provides payment solutions for the consumer marketplace 100.0 - - 12/30/08 Eclipsys Premise Corporation Provides clinically-focused software solutions 38.5 - - 10/08/08 Symantec MessageLabs Enterprise managed technology SaaS solution 695.0 4.8 - 05/01/08 Autodesk MoldFlow Computer aided engineering software solutions 184.7 3.1 16.9 Range: High $7,400.5 10.9x 79.4x Median $141.5 2.6x 13.8x Mean $573.6 3.2x 19.6x Low $18.0 0.6x 7.9x 17 Source: CapitalIQ; The 451 Group
  18. 18. Selected Software Equity Private Placement Activity Date Amount Announced Lead Investor(s) Target Target Business Description Raised ($ mm) 3/31/2010 NGEN Partners, LLC moka5, Inc. Desktop virtualization $ 21 3/26/2010 The Four Rivers Group Vidyo, Inc. Internet based video conference solutions $ 25 3/22/2010 The9 Limited Red 5 Studios, Inc. Multiplayer online games developer $ 20 2/24/2010 Mayfield Fund Pano Logic, Inc. Desktop virtualization $ 20 2/22/2010 Institutional Venture Partners ngmoco, Inc. Mobile game developer $ 25 12/31/2009 Investcorp Technology Partners CSIdentity Corporation Identity fraud solutions $ 35 12/15/2009 Existing investors Silver Spring Networks, Inc. IP-based networking products $ 105 11/17/2009 Founders Fund, In-Q-Tel, and Reed Elsevier Ventures Palantir Technologies, Inc. Platforms for integrating, visualizing, and analyzing information $ 35 11/11/2009 New Enterprise Associates Playdom, Inc. Social game developer $ 43 10/8/2009 SAIC, Inc. BPL Global, Ltd. Smart grid technology $ 22 10/6/2009 TA Associates, Inc. TEOCO Corporation Network cost optimization solutions $ 60 8/31/2009 Six unnamed investors Prodea Systems, Inc. Digital home and multimedia management technologies $ 32 7/31/2009 Doll Capital Management Smith & Tinker, Inc. Online and offline game developer $ 29 7/22/2009 Sequoia Capital eMeter Corporation Energy information management solutions $ 32 7/22/2009 New and existing investors iControl Networks, Inc. Home monitoring solutions $ 23 6/29/2009 Menlo Ventures ParAccel, Inc. Database Management System (DBMS) $ 22 5/6/2009 VantagePoint Venture Partners Tendril Networks, Inc. Residential energy management systems (REMS) $ 30 12/11/2008 Intel Capital and Presidio Venture Partners Carrier IQ, Inc. Mobile services intelligence solutions $ 20 11/21/2008 Bessemer Venture Partners Goodmail Systems, Inc. Email solutions $ 25 10/7/2008 Goldman Sachs Group, Merchant Banking Division Nimsoft, Inc. Performance and availability monitoring solutions $ 26 10/2/2008 New Enterprise Associates Dexterra, Inc. Mobile workforce solutions $ 22 9/30/2008 Monitor Clipper Partners, Inc. Accellos, Inc. Supply chain solutions $ 29 9/23/2008 Act II Capital Trion World Network, Inc. Games developer $ 70 9/23/2008 Index Ventures OpTier, Inc. Business transaction management solutions $ 48 9/22/2008 LSI Corporation 3Leaf Systems Server virtualization solutions $ 35 8/26/2008 Norwest Venture Partners Vanu, Inc. Radio access network solutions $ 32 8/6/2008 Court Square Ventures LLC Echo360, Inc. Platform that captures and converts class lectures $ 22 7/30/2008 Pinnacle Ventures Kickfire, Inc. Database appliances $ 20 7/21/2008 Goldman, Sachs & Co. CambridgeSoft Corporation Life science enterprise software $ 21 7/18/2008 Garnett & Helfrich Capital Azingo, Inc. Mobile software $ 50 6/17/2008 Foundation Capital Control4 Corporation Wired and wireless home automation products $ 20 6/16/2008 Montagu Newhall Associates Roundbox, Inc. Mobile broadcast solutions $ 20 6/11/2008 Highland Capital Partners and General Catalyst Partners Bullhorn, Inc. Staffing and recruiting software $ 26 4/25/2008 Insight Venture Partners and Updata Partners DataCore Software Corporation Storage virtualization $ 30 18 Source: CapitalIQ
  19. 19. Expertise. Discipline. Results. Columbia Center 701 5th Ave, Ste 2600 Seattle, WA 98104 www.cascadiacapital.com
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