Venture Capital Environment 2010 Q3

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Startup Capital Ventures Venture Capital Climate for Q3 2010 shows an imbalance between inflows and investments despite an excellent IPO and M&A environment and strong VC returns.

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Venture Capital Environment 2010 Q3

  1. 1. US VC Investment Climate Q3 2010 www.startupcv.com tdick@startupcv.com
  2. 2. Hong  Kong  Silicon  Valley   What’s Going On In The US VC Cycle?  Page  2   VCs Invest In Startups Startups Exit Via M&A or IPO VCs return capital to LPs LPs Invest In VCs
  3. 3. Hong  Kong  Silicon  Valley   Page 3! US Venture Fundraising Bumping Along At Record Lows Of $2-3B Per Quarter Source: Thomson Reuters / NVCA 0 2000 4000 6000 8000 10000 12000 14000 16000 2006 Q1Q2 Q3 Q42007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q42010 Q1Q2 Q3 MoneysRaised($M) Year / Quarter US Venture Capital Raised
  4. 4. Hong  Kong  Silicon  Valley   Although Slightly More (& Therefore Smaller) Funds Were Raised Page 4! 0 10 20 30 40 50 60 70 80 90 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 NumberofFunds Quarter Number Of US VC Funds Raising Capital Source: Thomson Reuters / NVCA
  5. 5. Hong  Kong  Silicon  Valley   VC Has Outperformed Public Market Returns  Page  5   Source: Cambridge Associates • .com boom• .com bust
  6. 6. Hong  Kong  Silicon  Valley   A Good Proportion Of Funds Raised Were New Funds Page 6! Source: Thomson Reuters / NVCA 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% FundsRaised(Count) Quarter / Year New Vs. Follow-On Funds Raised New Follow On
  7. 7. Hong  Kong  Silicon  Valley   Fundraising Has Slowed For Several Reasons  Page  7   “Over the last two years, alternative asset allocations have declined and the exit market has suffered, putting venture firms in the unenviable position of communicating their value in an extremely challenging environment. - Mark Heesen, NVCA Current cash-flow needs have shifted some LPs asset allocations away from illiquid and alternative asset classes such as VC & PE
  8. 8. Hong  Kong  Silicon  Valley   $- $1,000,000,000 $2,000,000,000 $3,000,000,000 $4,000,000,000 $5,000,000,000 $6,000,000,000 $7,000,000,000 $8,000,000,000 $9,000,000,000 AmountInvested($) Year / Quarter US Venture Capital Invested (2003 - 2010) Page 8! However Venture Capital Invested Has Rebounded To $5-6B Per Quarter Source: Thomson Reuters / NVCA * Last quarter is always under-counted
  9. 9. Hong  Kong  Silicon  Valley   0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2003 2004 2005 2006 2007 2008 2009 MoniesInvested(%) Year US Venture Investing Mix Telecommunications Software Semiconductors Retailing/Distribution Other Networking & Equip't Med Devices & Equip't Internet & Web 2.0 IT Services Cleantech Healthcare Services Financial Services Electronics/Instruments Consumer Prod's & Svc's Computers & Peripherals Business Prod's & Svc's Biotechnology <<<<<<<<< Cleantech >>>>>>>>>> <<<<<<<<<<Software >>>>>>>>>>>> <<<< Semiconductors >>>> <<< Medical Devices >>> IT services Internet Software & Biotech Remain Largest Sectors With Cleantech & MedTech Growing Page 9! Source: Thomson Reuters / NVCA 2010
  10. 10. Hong  Kong  Silicon  Valley   Silicon Valley & Route 128 Remain 50% Of Market, But L.A. & N.Y. Growing Page 10! 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 2008 2009 2010 Upstate NY Unknown Texas SouthWest Southeast Oklahoma Silicon Valley San Diego Sacramento/N.Cal Philadelphia Metro NY Metro Northwest North Central New England Midwest LA/Orange County DC/Metroplex Colorado Source: Thomson Reuters / NVCA
  11. 11. Hong  Kong  Silicon  Valley   US Maintaining Its Share (65%) In Global Venture Market Page 11! 0 5 10 15 20 25 30 35 40 45 50 2007 2008 2009 2010 * Investment(%OfMonies) Year Venture Capital Funding By Region US Israel India China Europe Source: DowJones VentureSource * 2010 based on Q1 statistics
  12. 12. Hong  Kong  Silicon  Valley   Investment Is Focused On Expansion Stage Page 12! 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005 2006 2007 2008 2009 2010 PercentageOfMoniesByStage Year US Venture Monies Invested By Stage Later Stage Expansion Early Stage Startup/Seed Source: Thomson Reuters / NVCA
  13. 13. Hong  Kong  Silicon  Valley   Page 13! Fewer A & B Rounds But More C & D Reflect VC Tilt To Expansion Deals 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q42010 Q1Q2 SeriesMix(%) Quarter / Year Series Of Venture Funding Over Time E & Later D C B A Source: Fenwick & West
  14. 14. Hong  Kong  Silicon  Valley   First And Expansion Round Sizes Increased While Late Stage Has Fallen Page 14! - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 2005 2006 2007 2008 2009 2010 Total AverageInvestmentSize($) Year Investment Round Size By Stage Startup/Seed Early Stage Expansion Later Stage Overall Average Source: Thomson Reuters / NVCA
  15. 15. Hong  Kong  Silicon  Valley   0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Up/Flat/NeutralValuations(%) Year / Quarter Financing Round Valuation Mix Up Flat Down Page 15! Up-Rounds Back To Majority Of Of Funding Events Source: Fenwick & West
  16. 16. Hong  Kong  Silicon  Valley   Multiple Liquidation Pref’s Normative But Pay To Play* Increasing Page 16! Source: Fenwick & West 0% 5% 10% 15% 20% 25% 30% 2007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q4Q1 2010Q2 PercentageofRoundsw/Provisions Year / Quarter Investment Round Provisions Multiple Liquidation Preferences Pay To Play * A new form of contractual “pull up” whereby conversion to common is automatic if participation does not occur is emerging
  17. 17. Hong  Kong  Silicon  Valley   Page 17! Exits! VC-Backed M&A & IPO Activity Is Healthy: $16B Raised In Q3 Source: Thomson Reuters / NVCA 0 20 40 60 80 100 120 140 2006 Q1Q2 Q3 Q42007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q42010 Q1Q2 Q3 TransactionCount Quarter US Venture-Backed IPO & M&As IPOs M&As
  18. 18. Hong  Kong  Silicon  Valley   $- $50 $100 $150 $200 $250 $300 $350 $400 $450 2006 Q1Q2 Q3 Q42007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q42010 Q1Q2 Q3 Transaction/OfferingSize($M) Year / Quarter Venture Exit Transaction Sizes Avg. Reported M&A Value Avg. IPO Float Page 18! VC-backed IPO and M&A Deal Size Is Strong & VCs Will Be Returning Capital To LPs Source: Thomson Reuters / NVCA
  19. 19. Hong  Kong  Silicon  Valley   The Venture Funding Cycle Is Imbalanced* Page  19   VCs Invest $5B In Portfolio $16B In Venture Exits LPs Invest $3B In VCs Sources: Thomson Reuters, Dow Jones, Fenwick & West * Q3 2010
  20. 20. Hong  Kong  Silicon  Valley   A Fork In The Road: Market Equilibrium Must Return (One Way Or Another) •  VC exit activity of $16B in Q3 is at the highest levels since 2007 with good valuations •  VCs returning capital to LPs again •  VCs are investing at levels of $5 - $6B per quarter... •  But LPs are funding VCs at at just $2 - $3B per quarter  Page  20   •  Venture capital declines to match lower LP investment in VC •  VC continues at today’s level if LPs increase allocation to VC sector
  21. 21. www.startupcv.com tdick@startupcv.com

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