Capital Risk & IT, The Perfect Connection?

November 2007 Meeting Venture Capital Capital Risk & IT (NTIC) The Perfect Connection? Nanga A. KONE

Venture Capital
Venture capital is a type of private equity outside investors to new, growth businesses. Generally made as cash in exchange for shares in the investment company, venture capital investments are usually high risk, but offer the potential for above-average returns .

Venture Capital Fund
A venture capital fund is a pooled investment vehicle (often a limited parternship) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans

History of Venture Capital
Highs & Lows of the 1980s
In 1978, the US Labor Department reinterpreted ERISA legislation and thus enabled this major pool of pension fund money to invest in alternative assets classes such as venture capital firms. Venture capital financing took off.
1983 was the boom year - the stock market went through the roof and there were over 100 initial public offerings for the first time in U.S. history. That year was also the year that many of today's largest and most prominent VC firms were founded.
Due to the excess of IPOs and the inexperience of many venture capital fund managers, VC returns were very low through the 1980s. VC firms retrenched, working hard to make their portfolio companies successful. The work paid off and returns began climbing back up.

History of Venture Capital
The dot com boom
The late 1990s were a boom time for the globally-renowned VC firms on Sand Hill Road in the San Francisco Bay Area . A number of large IPOs had taken place, and access to "friends and family" shares was becoming a major determiner of who would benefit from any such IPO; Common investors would have had no chance to invest at the strike price in this stage.

Venture Capital
Venture Capital may be a viable source of financing for a business. While they generally invest in businesses that are more established and ongoing, some do fund start-ups . In general they tend to invest in high-technology businesses such as research and development, electronics and computers. Venture Capitalists deal more in large sums of money, numbering into the millions of dollars, so they are generally well suited to businesses that are going grand from the start or have grown and require gigantic expansion.

Venture Capital and Start Up

Venture Capital and Development
Venture capital can be used as a financial tool for development , within,
the range of small and medium enterprises (SME) , by playing a key role in business start-ups,
existing SME and overall growth in developing economies.
Venture capital acts most directly by being a source of job creation , facilitating access to finance for small and growing companies which otherwise would not qualify for receiving loans in a bank,
and improving the corporate governance and accounting standards of the companies.
Venture capital is used as a tool for economic development in areas such as Latin America and Africa.

Intervention of Venture Capital

Roles within a VC firm
Venture capital general partners (also known in this case as "venture capitalists" or "VCs") are the executives in the firm, in other words the investment professionals. Typical career backgrounds vary, but many are former chief executives at firms similar to those which the partnership finances and other senior executives in technology companies.

Now… Let’s See What The Real World of Venture Capital Looks Like !
Sequoia Capital
CVCA
Canadian Venture Capital industry

Venture Capital Firm: Sequoia Capital No. of Investments:343 No. of Active Investments:144 Our favorite investment candidates are businesses operating in the electronic segments of the economy including Components, Systems, Software and Services companies.

Sequoia Capital…Investment MAP

Sequoia :Creators
As the "Entrepreneurs Behind the Entrepreneurs", Sequoia Capital has had the privilege of being the first investor and business partner in companies that make-up 10% of the NASDAQ's value.
Here are some partners:
Steve Jobs, Apple Computer
Larry Ellison, Oracle
Bob Swanson, Linear Technology
Sandy Lerner and Len Bozack, Cisco Systems
Jerry Yang and David Filo, Yahoo!
Jen-Hsun Huang, NVIDIA
Dan Warmenhoven, Network Appliance
Michael Marks, Flextronics
Larry Page and Sergey Brin, Google
Chad Hurley and Steve Chen, YouTube

Sequoia : Companies

Blue Coat YouTube Traiana PortAuthority Yahoo! CafePress.com Google Sourcefire Netezza Flextronics Mellanox Technologies Electronic Arts Atari Apple Topio YouTube Network Appliance

Sequoia :Companies eHarmony Open-Silicon Oracle FirstSource Google PayPal Atom Entertainment Asia Media Cisco Systems AdBrite PayPal Cypress Followap Zappos.com LinkedIn Apple

Association.. The Canadian Case
The CVCA – Canada’s Venture Capital & Private Equity Association – represents the majority of private equity companies in Canada, with over 1200 members. CVCA members have over $50 billion in capital under management, in three distinct market segments:
♦ Buyout is characterized chiefly by risk investment in established private or publicly listed firms that are undergoing a fundamental change in operations or strategy. Buyout funds are often called such, even if their mandates are not exclusively buy out related.

♦ Mezzanine is characterized chiefly by use of Subordinated Debt, or preferred stock with an equity kicker, to invest largely in the same type of companies and deals as buyout funds.
♦ Venture Capital is characterized generally by investment in early stage companies, mostly in technology businesses.
The CVCA is a leading source for advocacy, networking, information and professional development for venture capital and private equity professionals.

Industry… The Canadian Case
Canada’s Venture Capital Industry in Q4 2006
The CVCA –Canada’s Venture Capital and Private Equity Association is pleased to provide the following overview of activity in the Canadian venture capital market through the full year 2006, including current data for the fourth quarter.
Venture capital investment across Canada in 2006 amounted to $1.69 billion, matching the total of $1.68 billion invested in 2005. In the fourth quarter, total investment amounted to $489 million, just below the $502 million of Q4 2005 but representing a 42% increase over the Q3 2006 level of $344 million.
In spite of these generally flat results across the market as a whole, three significant underlying trends are clearly visible:
• A substantial regional shift away from Ontario and into Quebec and British Columbia,
• A major increase in Canadian investment by foreign (principally U.S.) venture funds, and
• A decline in the number of companies funded, with a corresponding increase in the amount of capital invested per company.
In the broader North American context, the relatively flat Canadian venture capital sector is not participating in the steady growth of major U.S. markets, and is therefore declining in the regional rankings.

Industry… The Canadian Case
Regional Shift
Quebec performed very strongly in Q4 2006, leading all Canadian provinces with $247 million in venture investments compared to $104 million in Q3 2006. For the full year, Quebec saw $603 million invested in 179 companies, up 9% from the $552 million of 2005. British Columbia experienced even stronger growth for the full year 2006, where 52 companies received $298 million ($44 million in Q4), up 30% from the $230 million of 2005.
Growth in these markets contrasted with the decline in Ontario, which attracted $165 million in Q4 2006, consistent with $163 million in Q3 2006 and down 16% from the $197 million of Q4 2005. For the full year 2006, 118 Ontario companies received investment of $686 million, a decline of 9% from the $755 million reported in 2005.
For the full year 2006, Ontario remained the largest venture capital market in Canada with a 40% share (down from 45% in 2005), followed by Quebec with 36% (up from 33%) and British Columbia at 18% (up from 14%).

… Industry Note the FOREIGN share !!!

… . Industry Note the SOFTWARE share !!!

… . Industry Note the INDIVIDUALS share !!!

Why Private equity and venture capital will be good for the IT industry ?
Private equity-backed companies help grow the economy and make it more competitive globally
Private equity is good for jobs
Private equity is good for investment and R&D
Private equity is good for sales and exports
Private equity is good for growing businesses
… So What Are We Waiting For ?

Thank you for your attention

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Capital Risk & IT, The Perfect Connection?

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