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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.

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 Venture Capital Environment 2010 Q3 Presentation Transcript

    • US VC Investment Climate Q3 2010 www.startupcv.comtdick@startupcv.com
    • What’s Going On In The US VC Cycle? LPs VCs Invest In Invest In VCs Startups VCs Startups return Exit Via capital to M&A or LPs IPO Silicon  Valley   Hong  Kong    Page  2  
    • US Venture Fundraising Bumping Along At Record Lows Of $2-3B Per Quarter US Venture Capital Raised 16000 14000 12000 Moneys Raised ($M) 10000 8000 6000 4000 2000 0 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Year / Quarter Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 3!
    • Although Slightly More (& Therefore Smaller) Funds Were Raised Number Of US VC Funds Raising Capital 90 80 70 60 Number of Funds 50 40 30 20 10 0 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 QuarterSource: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 4!
    • VC Has Outperformed Public Market Returns • .com bust • .com boomSource: Cambridge Associates Silicon  Valley   Hong  Kong    Page  5  
    • A Good Proportion Of Funds Raised Were New Funds New Vs. Follow-On Funds Raised 100% 90% 80% Funds Raised (Count) 70% 60% New 50% Follow On 40% 30% 20% 10% 0% Quarter / Year Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 6!
    • Fundraising Has Slowed For Several Reasons “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 Silicon  Valley   Hong  Kong    Page  7  
    • However Venture Capital Invested Has Rebounded To $5-6B Per Quarter US Venture Capital Invested (2003 - 2010) $9,000,000,000 $8,000,000,000 $7,000,000,000 Amount Invested ($) $6,000,000,000 $5,000,000,000 $4,000,000,000 $3,000,000,000 * Last quarter is always under-counted $2,000,000,000 $1,000,000,000 $- Year / QuarterSource: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 8!
    • Software & Biotech Remain Largest Sectors With Cleantech & MedTech Growing US Venture Investing Mix Telecommunications 100% Software Semiconductors 90% Retailing/Distribution 80% <<<<<<<<<<Software >>>>>>>>>>>> Other Monies Invested (%) 70% Networking & Equipt <<<< Semiconductors >>>> 60% Med Devices & Equipt <<< Medical Devices >>> Internet & Web 2.0 50% Internet IT services IT Services 40% Cleantech <<<<<<<<< Cleantech >>>>>>>>>> 30% Healthcare Services Financial Services 20% Electronics/Instruments 10% Consumer Prods & Svcs 0% Computers & Peripherals 2003 2004 2005 2006 2007 2008 2009 2010 Business Prods & Svcs Year Biotechnology Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 9!
    • Silicon Valley & Route 128 Remain 50% Of Market, But L.A. & N.Y. Growing 100% Upstate NY 90% Unknown Texas 80% SouthWest 70% Southeast Oklahoma 60% Silicon Valley San Diego 50% Sacramento/N.Cal Philadelphia Metro 40% NY Metro Northwest 30% North Central 20% New England Midwest 10% LA/Orange County DC/Metroplex 0% Colorado 2007 2008 2009 2010 Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 10!
    • US Maintaining Its Share (65%) In Global Venture Market Venture Capital Funding By Region 50 45 40 Investment (% Of Monies) 35 30 US 25 Israel 20 15 India 10 China 5 Europe 0 2007 2008 2009 2010 * YearSource: DowJones VentureSource * 2010 based on Q1 statistics Silicon  Valley   Hong  Kong   Page 11!
    • Investment Is Focused On Expansion Stage US Venture Monies Invested By Stage 100% 90% 80% Percentage Of Monies By Stage 70% 60% 50% Later Stage Expansion 40% Early Stage 30% Startup/Seed 20% 10% 0% 2005 2006 2007 2008 2009 2010 YearSource: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 12!
    • Fewer A & B Rounds But More C & D Reflect VC Tilt To Expansion Deals Series Of Venture Funding Over Time 100% 90% 80% 70% Series Mix (%) 60% E & Later D 50% C B 40% A 30% 20% 10% 0% 2007 Q1Q2 Q3 Q42008 Q1Q2 Q3 Q42009 Q1Q2 Q3 Q42010 Q1Q2 Quarter / YearSource: Fenwick & West Silicon  Valley   Hong  Kong   Page 13!
    • First And Expansion Round Sizes Increased While Late Stage Has Fallen Investment Round Size By Stage 12,000,000 10,000,000 Average Investment Size ($) 8,000,000 Startup/Seed 6,000,000 Early Stage Expansion 4,000,000 Later Stage Overall Average 2,000,000 - 2005 2006 2007 2008 2009 2010 Total Year Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 14!
    • Up-Rounds Back To Majority Of Of Funding Events Financing Round Valuation Mix 100% 90% Up / Flat / Neutral Valuations (%) 80% 70% 60% Up 50% Flat Down 40% 30% 20% 10% 0% 2007 Q2 Q3 Q4 2008 Q2 Q3 Q4 2009 Q2 Q3 Q4 2010 Q2 Q1 Q1 Year / Quarter Q1 Q1Source: Fenwick & West Silicon  Valley   Hong  Kong   Page 15!
    • Multiple Liquidation Pref’s Normative But Pay To Play* Increasing Investment Round Provisions 30% Percentage of Rounds w/Provisions 25% 20% Multiple Liquidation Preferences 15% Pay To Play 10% * A new form of contractual 5% “pull up” whereby conversion to common is automatic if participation 0% does not occur is 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 emerging Year / QuarterSource: Fenwick & West Silicon  Valley   Hong  Kong   Page 16!
    • Exits! VC-Backed M&A & IPO Activity Is Healthy: $16B Raised In Q3 US Venture-Backed IPO & M&As 140 120 100 Transaction Count 80 IPOs M&As 60 40 20 0 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 QuarterSource: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 17!
    • VC-backed IPO and M&A Deal Size Is Strong & VCs Will Be Returning Capital To LPs Venture Exit Transaction Sizes $450 $400 Transaction / Offering Size ($M) $350 $300 $250 Avg. Reported M&A Value $200 Avg. IPO Float $150 $100 $50 $- 2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Year / Quarter Source: Thomson Reuters / NVCA Silicon  Valley   Hong  Kong   Page 18!
    • The Venture Funding Cycle Is Imbalanced* LPs Invest VCs Invest $5B $3B In VCs In Portfolio $16B In Venture Exits * Q3 2010 Sources: Thomson Reuters, Dow Jones, Fenwick & West Silicon  Valley   Hong  Kong   Page  19  
    • 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 •  Venture capital •  VC continues at declines to match today’s level if LPs lower LP increase allocation investment in VC to VC sector Silicon  Valley   Hong  Kong    Page  20  
    • www.startupcv.comtdick@startupcv.com