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2012 a great time for start-ups

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The Quigley Report http://techcrunch.com/tag/quigley-report

The Quigley Report http://techcrunch.com/tag/quigley-report

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  • 1. A Venture Capital ! Revival! Is Upon UsR .I.P.
  • 2. RT @MarkTwain The reports of my death have been greatly exaggerated.
C L E A R S T O N E
 William Quigley Managing Director

  • 3. 10 Years ago… The decade began on a high note… but quickly evolved into extraordinary difficult times."C L E A R S T O N E
 William Quigley Managing Director

  • 4. Unstable Situation "Venture Capital Environment - Circa 2000/2001 " 2000 / 2001 Trend Direction… Valuations Very high Falling Capital availability Substantial Beginning to tighten Fund commitments $83B & Big Overhang Shrinking # of Active Firms 1338 At a high but going down Tracking index – NASDAQ 4000 Falling rapidly Technology spending Historically High Dropping quickly
  • 5. VC Fundraising and Performance " Plummet After a 7X Increase in Capital in Just 4 years $  90   80    $83     70   60   50  $B    $57     40    $45     30   20    $27     10    $17      $19      $12      $9     0   1996   1997   1998   1999   2000   2001   2002   2003  Source: DowJones VentureSource, NVCA.
  • 6. In the 2000s" Venture Capital Exits Shifted from IPOs to Less Valuable M&A VC  Exits:  ‘91  –  ‘00   VC  Exists:    ‘01  –  ‘‘09 VC Exits: ‘01 – 09   IPO   12%   M&A   42%   IPO   58%   M&A   88%  Source: NVCA.
  • 7. 10 Years Later….C L E A R S T O N E
 William Quigley Managing Director

  • 8. The market is now poised for " breakout performance.
  • 9. Conditions have improved considerably helped by a "reduction in capital and firms.
  • 10. Venture Capital Fundraising" Has Been in Decline Since 2007 $90   $80   $70    $83     $60   $50   $B   $40    $45     $30    $37      $30     $20    $28      $21      $27     $10    $19      $15      $9      $12     $0   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010  Source: DowJones VentureSource.
  • 11. Venture capital fundingcommitments to ITare even less than meets the eye. Because……
  • 12. Much of the recent LP funding to venture capital has gone into Cleantech
  • 13. Cleantech Share " Venture Investments Up 8X Cleantech investments have crowded-out other sectors, further decreasing funds directed towards IT investing.Source: NVCA.
  • 14. The US economy has grown almost 50% since 2000 " yet…
  • 15. less ventureThere is capital under management today than there was 10 years ago.
  • 16. Venture Capital Assets Under Management Are " Lower Today Than They Were a Decade Ago 300   $262   $270   $277   $253   $253   $254   $255   250   $225   $204   200   $179   150   $B 100   50   0   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   Venture capital investments are now outpacing new funding commitments by LPs, draining the pool of investable capital."Source: NVCA.
  • 17. Venture Capital Fundraising As a % of GDP " Has Rapidly Fallen $16    $14.1   $14.4   $14.7   1.0%   $13.4   $14.1   $14   $11.1   $11.9   $12.6   0.8%   $12   $10.3   $10.6   $10.0   $10   0.6%   $T   $8   $6   0.4%   $4   0.2%   $2   $0   0.0%   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   Venture Capital fundraising as a % of GDP has been declining since 2000.Source: DowJones VentureSource, Bureau of Economic Analysis.
  • 18. Consider…C L E A R S T O N E
 William Quigley Managing Director

  • 19. American Reinvestment and Recovery Act of 2009$787 Billion  
  • 20. New Commitments To Venture Capital Funds in 2009? $15 Billion  
  • 21. But After a Long Shake Out, " Attractive Conditions Ahead…"•  Venture capital fund commitments down for last 3 years –  Positive contra-indicator•  Early stage valuations stable… –  While late stage and IPO valuations growing•  Strong public market appetite for growth stories –  Recent IPOs in the enterprise and consumer services sectors well received
  • 22. Venture Capital Firms" Only the Strongest Survived the Post-Bubble Shake-Out Ac=ve  Informa=on  Technology  Investors   1600   #  of  Ac=ve  Firms   1400   1200   1000   712   514   398   381   800   449   405   416   426   375   313   >3  Deals/yr   600   400   726   724   672   <=3  Deals   626   591   613   597   572   614   572   200   0   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   Active Investors Down" – 712 active investors in 2000 versus 313 in 2009, a 56% decline." Average Fund Size Increased" – $165M in 2000 versus $200MM in 2009."Source: DowJones VentureSource.
  • 23. Venture-Backed IPOs Will Return to Pre Financial Crisis Levels in 2011 100   86   80   No. of Venture-Backed OPO’s 80   72   57   57   60   40   20   12   6   0   2005   2006   2007   2008   2009   2010   2011E   A new generation of large market cap tech companies will increase the field of acquirers.Source: NVCA and Clearstone analysis.Selected IPO’s shown in 2011. LinkedIn and Pandora have filed for IPO. Facebook and Groupon IPO are market speculation.
  • 24. VC Environment Today"Attractive Conditions Economic Situation" 2011 Trend Direction… Valuations Moderate Rising in Certain Growth Markets Capital availability Adequate Stable Stable but trending down Fund commitments $~12B 1/2 of the high & # of Active Firms ~300 shrinking Tracking index – Stable with IPO market 2800 NASDAQ open Good and rising in someTechnology spending Stable sectors
  • 25. “theHave you heard the maxim venture model is broken” in the last 6 months?
  • 26. That question was really asking “are VCs being rewarded for their work anymore?”
  • 27. The Answer? YES!
  • 28. More so than earlier tech cycles, private investors are being rewarded for potential break out value at IPO…. Lets look back at the so called venture capital golden age…..
  • 29. The Golden AgeC L E A R S T O N E
 William Quigley Managing Director

  • 30. How were the iconic tech companies of the past valued when they went public?
  • 31. IPO Date: 1986CY 1986 Revenues: $198MCY 1987 Revenues: $346M
  • 32. IPO Valuation? $650M~1.8X Revenue
  • 33. IPO Date: 1990CY 1990 Revenues: $69MCY 1991 Revenues: $183M
  • 34. IPO Valuation? $225M~1.25X Revenue
  • 35. IPO Date: 1997CY 1997 Revenues: $148MCY 1998 Revenues: $610M
  • 36. IPO Valuation? $440M~0.7X Revenue
  • 37. IPO Date: 1999CY 1999 Revenues: $103MCY 2000 Revenues: $647M
  • 38. IPO Valuation? $1.5B~2.2X Revenue
  • 39. IPO Date: 1989CY 1989 Revenues: $64MCY1990 Revenues: $102M
  • 40. IPO Valuation? $73M~0.7X Revenue
  • 41. How do the Golden Age companies compare to Today’s leadingtech companies?
  • 42. More Value Accruing to Venture Investors, "Not Public Shareholders $70 $70 $60 Pre-Money IPO Valuations $50 Public investors $40 $40 participated in 99% of the $B terminal value of these $30 companies $20 $12 $10 $0.23 $0.44 $.065 $0 Cisco Amazon Microsoft VMware Google Facebook Earlier Tech New Tech Cycles Cycle Source: Facebook Pre-Money IPO valuation $70B per SharesPost private market exchange – February 2011.
  • 43. IPO Valuations Now Exceed the Level " Reached During the Tech Bubble $  1200   1000   800   15   $  Millions   600   12   11   400   9   9   9   9   9   8   8   9   8   8   10   9   10   10   7   7   5   200   0   1990   1992   1994   1996   1998   2000   2002   2004   2006   2008   Mean  Company  Age  at  IPO   Mean  Pre-­‐Money  ValuaKon   Mean pre-money IPO valuations of venture backed companies have increased at a 16% CAGR since 1990, while company age at IPO has remained relatively even.Source: NVCA.
  • 44. So why are earlystage companies capturing more value?
  • 45. 3 Things Have ChangedC L E A R S T O N E
 William Quigley Managing Director

  • 46. 1.  Internet Growth Internet Companies Can Reach Critical Mass Faster % Global Users 2000  vs.  2010  Number  of  Internet  Users  (millions)    22.5    21.4% China*    420.0      124.0    12.2% United  States    239.2      47.1     5.0% Japan    99.1      5.0     4.1% India    81.0      5.0     3.7% Brazil*    72.0     2000    24.0     2010   3.3% Germany    65.1      3.1     3.0% Russia    59.7      15.4     2.6% UK    51.4      8.5     2.3% France    44.6      19.0     2.0% South  Korea    39.4    Source: Internet World Stats. 2010 data as of June 2010*China figures do not include SAR Hong Kong, SAR Macao and Taiwan. Brazil data for 2009
  • 47. 2. Capital Markets Better Informed Proliferation of technology specialists in the public markets Hedge  Fund  Industry  Growth   2.0    12,000     1.6    10,000      8,000     1.2    6,000     0.8    4,000     0.4    2,000     0.0    -­‐     1990   1991   1992   1993   1994   1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   Number  of  Hedge  Funds   $AUM  Trillions   More hedge funds = more specialized public investors who understand the growth prospects of tech companies.Source: Hedge Fund Research.
  • 48. 3. Going Global, Faster Start-ups Expanding Offshore Earlier in their Lifecycle  $5.7      $1.2     2000   2010   China  GDP    $2.0        $0.6      $1.4     2000   2010   Brazil  GDP    $0.5     2000   2010   India  GDP   Groupon  already  has  35  interna=onal  offices!    $  Trillions  Source: International Monetary Fund.
  • 49. A Venture Capital Revival Is Upon Us •  Conditions are better today for private investors than they have been in over a decade •  Fewer VC investors are putting capital to work •  Public investors are shifting their allocations back to emerging growth stories   •  This is not a repeat of the dot com and telecom bubbles circa 1999-2000 •  Today’s tech cycle leaders have global reach and hyper attractive economics•  A new era technology start-up era has emerged •  Companies are scaling faster and accruing value sooner than ever before
  • 50. So what will drive venture returns this decade?•  Overallocated to right sectors•  The best funds are sector funds•  IPO market will be healthy•  New sources of liquidity like second market
  • 51. The Venture Capital Model Will Evolve •  Greater liquidity to LPs provided by an increasingly active secondary position market•  Shortening of the VC investment cycle. Funds will shift from 5 year investment terms to 3 years•  Growth in sector focused funds
  • 52. MobileC L E A R S T O N E
 William Quigley Managing Director

  • 53. Mobile is a Burgeoning Market, Driven by Smartphone Sales and… Apple  iPhone:  Cumula=ve  Units  Shipped    100      90      80      70      60     Millions    50      40     iPhone    30      20      10      -­‐    Source: Apple company filings
  • 54. …Tablet Proliferation 2010  –  2015  Tablet  Sales  and  Users  (Millions)   50   90   80   40   70  Tablet PC Tablet PC Users Sales 60   30   50   40   20   30   10   20   10   0   0   2010   2011   2012   2013   2014   2015   Total  Tablet  PC  Users  (US)   Tablet  PC  Sales  (US)  Source: Forrester
  • 55. CloudC L E A R S T O N E
 William Quigley Managing Director

  • 56. Mass Adoption of Cloud Computing is Expected to Help the Market Grow to $150 Billion by 2013 Cloud  Services  Market  Size  (Billions)  $160   $150  $140  $120   $114  $100   $89   $80   $71   $56   $60   $46   $40   $20   $0   2008   2009   2010   2011   2012   2013  Source: Gartner
  • 57. Mass Adoption of Cloud Computing is Expected to Help the Market Grow to $150 Billion by 2013 Percentage  of  PC  Unit  Sales,  US   24%   20%   18%   17%   16%   39%   30%   46%   32%   32%   33%   34%   34%   Desktops   39%   Notebooks/laptops   12%   12%   12%   12%   44%   13%   Netbooks/minis   46%   15%   38%   38%   38%   Tablets   29%   36%   17%   15%   8%   0   0   2008   2009   2010   2011   2012   2013   2014   2015   “With Microsoft, Google, and others investing in consumer cloud services, we anticipate a virtuous cycle of adoption of tablets driving adoption of cloud services and vice versa.” -ForresterSource: Forrester
  • 58. Social Networking & Online GamesC L E A R S T O N E
 William Quigley Managing Director

  • 59. Money flows to where people spend their time…..
  • 60. Social Networks and Online Games Increasingly Dominate Internet Usage Share  of  Time  Online:  June  2010   Social  Networks,   23%   Other,  34%   Classified/AucKon,   Online  Games,   3%   10%   MulK-­‐category   E-­‐mail,  8%   Entertainment,  3%   Soeware   Portals,  4%   Manufacturers,  3%   Instant  Messaging,   4%   Search,  4%   Videos/Movies,  4%   Social networks and online games grew 31% in 2010 and now account for 33% of all time onlineSource: Nielsen
  • 61. Presented By:" William Quigley Managing Director
C L E A R S T O N E