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  • 1. A family of global leading VC networks – IDG Ventures Korea Global Venture Capital Market - Trends and Implementation November 2009 Hee-Woo Lee CFO, IDG Ventures Korea
  • 2. What is VC?
  • 3. Definition of Venture Capital Private Equity is … an equity investment in assets that are not freely tradable on the public stock market. Types of Private Equity Venture Capital Growth Capital Mezzanine Capital Secondaries Leveraged Buyouts STRICTLY CONFIDENTIAL 3
  • 4. What Venture Capitalists Do STRICTLY CONFIDENTIAL 4
  • 5. What Venture Capitalists Do STRICTLY CONFIDENTIAL 5
  • 6. History - Overview DOW, NASDAQ Origin Early VCs & Growth of Silicon Valley 1st PE Boom 2nd PE Boom 3rd PE Boom (1946) (1959 – 1981) (1982 – 1993) (1994 – 2000) (2003 – 2007) STRICTLY CONFIDENTIAL 6
  • 7. Growth of Venture Capital Credit Crisis (2007 ~ ) Credit Crunch Golden Age Fundraising Issues (2003-2007) Secondaries Liquidities & IPOs Low Interest rate & Mega deals Boom & Bubble Great Returns Emerging (1995-2002) - Google, Skype, Myspace High Competition, but - Paypal Low ROI (late 1980s) Growth Internet Revolution & (1959-1994) Great Successes 1st Era: 1959-1981 - Amazon, Ebay, Sun , - Early VCs & Growth (Bay) Yahoo Origin Burst of Internet Bubble - 1st major success: DEC (1946-1958) (2000-2003) ($0.07M→$355M, 500X) After World War Ⅱ 2nd Era: 1982-1994 1st 2 VCs in 1946 - Expansion: 650 VCs (1980s) - ARDC - Searching for home run - JH Whitney & Co. - Fedex, Apple, Cisco, MS etc. STRICTLY CONFIDENTIAL 7
  • 8. Types of Venture Capital/Fund Startup Life Cycle Seed / Angel Growth Fund Later Stage Fund LBO Startup Fund Mezzanine Fund MBO Early Stage Fund Bridge Fund IPO STRICTLY CONFIDENTIAL 8
  • 9. VC Fund Structure GP Partnership Agreement LPs (General Partner, LLC) (Limited Partners) Capital Contribution 1% from GP Management Fees 99% from LPs Distribution Carried Interests Fund (Limited Partnership) Investment Portfolio 1 Portfolio 2 Portfolio 3 STRICTLY CONFIDENTIAL 9
  • 10. LPs in VC Fund US Market Korea Market Corporations, Pension Funds, Individuals, 10% 2% 7% Individuals, 8% Foreign Investors, 8% Corporations, Endowments & Pension Funds, 35% Foundations, 42% 21% VCs, 9% Financial Institutions, Financial Government, 25% Institutions, 21% 12% 2003 2008 STRICTLY CONFIDENTIAL 10
  • 11. Deal & Exit Funnel Deal Funnel Exit Funnel 100 Failed, 18% Deals M&A, 33% Zombie, 35% 10 Due Diligence IPO, 14% Source: Venture Impact 1 11,686 US companies, first funded 1991 to 2000 funded STRICTLY CONFIDENTIAL 11
  • 12. Performance of VC Funds (Source: NVCA 2008 Year Book) STRICTLY CONFIDENTIAL 12
  • 13. Global VC Trend - Focusing on US market
  • 14. Fundraising 2001-2008 Recent 2 years ($M) Raised Funds No. of Funds ($M) Raised Funds No. of Funds 40,000 350 14,000 100 35,000 300 12,000 80 30,000 250 10,000 25,000 60 200 8,000 20,000 15,000 150 6,000 40 10,000 100 4,000 20 5,000 50 2,000 0 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 • Not recovered yet, still gloomy. • Caught in a vicious circle due to LPs’ liquidity problems and non-capital intensive venture business STRICTLY CONFIDENTIAL 14
  • 15. Investment 2001-2008 Recent 2 years ($M) Invested No. of Inv. ($M) Invested No. of Inv. 50,000 5,000 10000 1200 40,000 4,000 8000 1000 800 30,000 3,000 6000 600 20,000 2,000 4000 400 10,000 1,000 2000 200 0 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 1Q'07 2Q'07 3Q'07 4Q'07 1Q'08 2Q'08 3Q'08 4Q'08 1Q'09 2Q'09 • Sharp decline due to lack of Fundraising and financial condition • Long term: Balanced movement STRICTLY CONFIDENTIAL 15
  • 16. Exit: IPOs & M&As ($M) M&A Value No. of M&As ($M) Offer Amt. No. of IPOs 35,000 200 12,000 100 180 90 30,000 10,000 160 80 25,000 140 8,000 70 20,000 120 60 100 6,000 50 15,000 80 40 60 4,000 30 10,000 40 2,000 20 5,000 20 10 0 0 0 0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 ($M) Avg. M&A Size Avg. IPO Amt. IPO M&A 200 100.0% 3.4% 180 21.3% 20.5% 21.4% 25.9% 160 80.0% 41.7% 140 120 60.0% 100 96.6% 80 40.0% 78.7% 79.5% 78.6% 74.1% 60 58.3% 40 20.0% 20 0 0.0% 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2008 STRICTLY CONFIDENTIAL 16
  • 17. Exit: Recent Trend Venture-Backed IPOs M&A Deals with Disclosed Amt.($M) No. Amt.($M) No. 5,000 35 12,000 120 31 30 4,000 10,000 100 25 25 8,000 80 3,000 20 18 6,000 60 2,000 15 12 4,000 40 10 1,000 5 5 5 2,000 20 0 0 1 0 0 0 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 • IPO Market; Vegetative State, Now begin to turn around • M&A, still remains as main Exit Routes STRICTLY CONFIDENTIAL 17
  • 18. Investment Trend: By Top Industries $M % 1600 40.0% 1400 35.0% Software Media & 1200 30.0% Entertainment 1000 Biotechnology 25.0% Software 800 20.0% Medical Devices & Medical Devices & 600 15.0% Equipment Equipment 400 Industrial / Energy 10.0% Industrial / Energy 200 5.0% 0 Media & 0.0% Biotechnology 1Q 2Q 4Q 1Q 2Q Entertainment 1Q 2Q 4Q 1Q 2Q 2008 2008 2008 2009 2009 2008 2008 2008 2009 2009 • Non-Capital Intensive Biz; S/W and Medical Devices • Biotechnology; Expecting next big thing! STRICTLY CONFIDENTIAL 18
  • 19. Investment Trend: By Stage $M % 3500 50% 3000 40% 41% 2500 2000 30% Later 28% 28% Later 26% 26% 25% 24% 1500 Expansion 22% Expansion 20% 19% 20% 1000 Seed/Early Seed/Early 10% 500 0 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 • Recession; the best time to invest in early stage startups • Tough competition; turn your eyes on early stage deals STRICTLY CONFIDENTIAL 19
  • 20. Investment Trend: Follow-on Reserve $M % Follow On Deals First Time Deals Follow On Deals First Time Deals 9,000 100% 8,000 90% 7,000 80% 70% 6,000 60% 78% 76% 75% 74% 78% 78% 79% 79% 81% 81% 5,000 50% 4,000 40% 3,000 30% 2,000 20% 1,000 10% 0 0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 • Follow-On; the best way to protect fund return. • Follow-on Reserve; 1:1.5 or 1:2? STRICTLY CONFIDENTIAL 20
  • 21. Midas List: Venture Capitalists (US) STRICTLY CONFIDENTIAL 21
  • 22. Investment Focusing Area • Real Time Web, Communications • Gaming(Online, Web, SNS, Mobile etc.) • App. Store • Media Contents • Cloud Computing • User Interface • Artificial Intelligence • Energy Technology • Water • Happy Health, Personalized Drug STRICTLY CONFIDENTIAL 22
  • 23. Global VCs in Korea STRICTLY CONFIDENTIAL 23
  • 24. WHO’S IDG?
  • 25. IDG Philosophy Working with great entrepreneurs to build world class companies STRICTLY CONFIDENTIAL 25
  • 26. IDG founder: Patrick J. McGovern • IDG History - 1964. Established IDG(International Data Group) - 1967. Computer World Launching - 1969. Established IDG UK - 1980. Established IDG China (the first US Company in China) - 1992. Venture Capital Business in China - 2007. Venture Capital Business in Korea • IDG Founder & Chairman • Yr 2008 Forbes the #89 Richest American (Net Asset Value $4.1bn) • IDG Ventures Korea Investment Committee Member STRICTLY CONFIDENTIAL 26
  • 27. World’s Largest IT Media Company Publication Research Conference (on/off) • 750 on/offline publications • 110 countries • MacWorld, Demo, E3, etc. • 2,000 IT journalists • 100 research areas • 750 events in 55 countries • 1,000 analysts STRICTLY CONFIDENTIAL 27
  • 28. IDG Ventures: Perfect VC Platform India Korea Vietnam 2006 2007 2004 Boston 2001 San Francisco 1997 China 1992 PR & Deal Sourcing Market & Tech Analysis Marketing & Partnership Publication Research Conference (on/off) STRICTLY CONFIDENTIAL 28
  • 29. IDG Ventures Global Network $3.7 billion under management, 220 companies built over the last 15 years Asia US $450M (1992) China SF $120M (1997) $318M (2005) $180M (2007) $900M (2007) $600M (2008) Beijing Boston $100M (2001) $180M (2005) San Francisco $100M (2004) Vietnam Seoul Boston Ho Chi Minh $150M (2006) India Bangalore $100M (2007) Korea STRICTLY CONFIDENTIAL 29
  • 30. Leading VC in Emerging Markets • Thinking Globally, Acting Locally! • Strong Support from IDG Group • Sound Investment Philosophy • Research Based Long Term Fund • Global Value Up Service via IDG Platform • Global Exposure, Global Marketing, Global Growth • Outstanding ROI since establishment Return IRR Remarks Fund Ⅰ: 400% 24% Vintage 1992 China Fund Ⅱ: 510% 34% Vintage 2005 San Francisco Fund Ⅰ: 330% 70% Vintage 1997 - IDG China: No. 1 VC in China - IDG Vietnam, India: Top 5 VC in the regions STRICTLY CONFIDENTIAL 30
  • 31. Why IDG Ventures in Korea Most Advanced IT Infrastructure Ideal for New Media Technology Broadband/Mobile Semiconductors LCD User Experience Memory & Storage LCD Panel Display World No.1 World No.1 World No.1 STRICTLY CONFIDENTIAL 31
  • 32. What’s different, IDG Ventures Korea! IDG Platform Global Network Media Research Conference Diversified Team Investment Strategy One Fund Focus on IT & New Media Long Term Investment STRICTLY CONFIDENTIAL 32
  • 33. IDG Ventures in Spotlight Global Portfolio “IDG’s Excellent Korean Venture” “What IDG saw in China - Early” “The five IDG VC teams to watch for in 2008” “How do you manage packs of proud VCs globally? You don’t unless you’re IDG or DFJ?” STRICTLY CONFIDENTIAL 33
  • 34. Global VCs in Field
  • 35. Sector Selection IT/SW Funds Clean Tech Funds BioTech Funds STRICTLY CONFIDENTIAL 35
  • 36. Company Selection Criteria Categories Details Contribution to industry value chain, Possible synergy with investees, High value- Ecosystem added sector Globalization Technology / Product / Service that can be meaningful in global market CEO & Leadership, Communication, Decision making, Management(HR, Organization, Management Team Company) abilities, One team but Diversified Feasible business model, Market and customer generating capacity, Quality of Business Model actual product and service, Distribution channel, Revenue generating capacity Technology / Service Value of the technology/innovation, Completeness of technology Value Addressable Addressable Market Size (local and abroad), Market growth, Growth rate, Timing Market Size Investment / Exit Compatibility with investment philosophy, Appropriate investment and exit value Opportunity (Possible Exit Routes) Others Corporate Sustainability Management, Localization capacity STRICTLY CONFIDENTIAL 36
  • 37. Deal Progress Screening Questionnaire Deal Manager meets company Update Deal Flow DB, Meeting Memo, Brief Comments Lead Office / Onsite Visit Deal Manager’s Review Consider Firm’s Presentation Begin business due-diligence Preliminary discussion of Terms Pursue In-depth business/Technology due-diligence (including Financial & Legal D-D) Final Negotiation, Prepare Valuation Model and Milestones Invest Final Decision: Investment Committee Prepare for capital injection consider value-added services for investees Post-Deal Agreement Provide resources for portfolio companies in all areas Leverage IDG Platform for strategy and market intelligence Assist in future financing and liquidity events STRICTLY CONFIDENTIAL 37
  • 38. Investment / Exit Process Investment Process Business Preliminary IR Full Scale Due Investment Investment Invest Plan Review Meeting Review Diligence Recom. Committee Submission of Review Business Business Feasibility Full scale Business Business Due Investment Decision to Sign Agreement Business Plan Plan Analysis Analysis Diligence Recommendation Invest Exit Process Exit Exit Monitoring Exit Recommendation Committee Portfolio Monitoring Exit Recommendation Exit Decision Execution in accordance (Value/Solvency) by Deal Manager to terms Appropriate M&A / IPO Exit Routes: M&A, Trade- Composed of Investment Constant monitoring by timing and specifications Sale, Buy-out , etc. Committee CFO/Deal Manager IPO, M&A terms Settle exit terms STRICTLY CONFIDENTIAL 38
  • 39. Risk Management Risk Management System Management Monitoring Evaluation Implementation Evaluation Criteria Action High Expected Grading Criteria Performance Focus Standard Achieve business goals as planned or reach excess return rate set at initial investment Prevent Standard Monitoring A (only if, return multiple 3~5 times, within deterioration “Normal Monitoring” 3~5 years) “Rescue” Likely to generate profit but does not B reach set target return C Likely to recover invested capital Action Minimize D Likely to achieve some loss in investment Share monitoring with F Complete depletion of investment Restructure or sell? co-investors “Give up” “Share Monitoring” Upside (+): upside potential opportunity Risk Stable: no favorable turns Low Expected Modifiers Performance Downside (-): exacerbating problems Operational Status Operational Status Critical Neutral STRICTLY CONFIDENTIAL 39
  • 40. Portfolio Value Up Service What Companies Say… IDC Report Conference/Event Global Competencies “Local VC’s lacked information on global market conditions. We thought that we would not be able to fulfill our globally focused strategy. IDG VK is the only VC that realized our global potential. IDGVK rather provided us with deeper insights on global markets.!” - Portfolio company “About I&C” CEO Strategic Advice “IDGVK understands start ups. Deal managers at IDGVK are exceptional industrial professionals who know what CEO’s are thinking at each stage. IDGVK provides us with indispensible advice in terms of how to deal with obstacles effectively.” - Portfolio company “ACT” CEO Co-Marketing VCs and investors working booths: good on you. I’ve been impressed by the number of investors Portfolio company “Xronet Corp” in IDC Small Portfolio company “Aboutt I&C” actually putting in real work. Henry Oh(IDGVK), for Vendor Profile, a report dedicated to Participated in TechCrunch 50 with IDGVK example, was absolutely a machine and left me promising companies. Jan. 2009 in SF. Sep. 2009 very impressed. If you’re an investor, what better opportunity to see your investment in action, gauge feedback, and see how your team interacts with people? Take the time to show up and man a booth; the golf course will still be there tomorrow. -Parand Tony Darugar, reporter (http://bit.ly/NEyVC) STRICTLY CONFIDENTIAL 40
  • 41. IDGVK’s PR Approach Biweekly Newsletter Micro Blogging STRICTLY CONFIDENTIAL 41
  • 42. IDGVK’s PR Approach Biweekly Newsletter Micro Blogging STRICTLY CONFIDENTIAL 42
  • 43. Portfolios of IDGVK STRICTLY CONFIDENTIAL 43
  • 44. Contact Information Hee-Woo Lee(CFO, mlee@idgvk.com) IDG Ventures Korea 9th Fl. Landmark Bldg. 77-11 Samsung-dong Gangnam-gu Seoul 135-090 Korea Tel: +82-2-3447-0510, Fax: +82-2-3447-0520 Homepage: www.idgvk.com, www.idgventures.com STRICTLY CONFIDENTIAL 44