THE SHIFTING VC LANDSCAPE Mark
Suster - @msuster

2 To read my full
blog post about this presentation and watch the video see links in description below.

2014 appears to be the
most active for LPs the since recession $23.1 $34.6 $36.0 $29.5 $12.6 $19.5 $24.7 $20.3 $18.4 $40 $35 $30 $25 $20 $15 $10 $5 Source: 2Q 2014 Pitchbook US Venture Industry Datasheet . Annualized 2014 fundraising based on 49 funds closed in Q1. PwC “Asset 3 Management 2020” $8.8 159 183 164 171 102 121 97 132 147 ~200 250 200 150 100 50 0 $- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est Capital Raised ($B) # of Funds Closed Q1

The Dot Com skepticism from
LPs has finally thawed, but some things have changed…

Seed funds now a well
accepted norm (67% of all funds). Starting to hear talk of “seed co-investment or opportunity funds” 33% Share of VC funds raised < $50M 40% *As of Q1 2014. Source; Q2 2014 PitchBook US Venture 5 Industry Data Sheet 54% 67% 2008 2010 2012 2014* Represents 6% of total $ raised

But overall LP capital has
continued to concentrated in later-stage funds with 66% of all money in big funds Share of VC $ funds raised > $500M 39% 43% *As of Q1 2014. Source; Q2 2014 PitchBook US Venture 6 Industry Data Sheet 59% 66% 2008 2010 2012 2014*

Traditional VC is what has
been impacted the most decreased in dollars and funds 44% # of Funds (%) $100M - $500M 33% 23% 18% 2008 2010 2012 2014* 53% $ Funds Raised (%) $100M - $500M *As of Q1 2014. Source; Q2 2014 PitchBook US Venture Industry Data 7 Sheet, Atelier Advisors 45% 32% 26% 2008 2010 2012 2014*

Some obvious factors driving later
stage LP investment 8 q Pension funds & other large asset managers need to write big checks q FoFs need to show they have access to the top historical winners q Continued perception / narrative of “the best and the rest” But this is too simplistic

The market is actually bifurcating
9

The structure of the startup
/ venture market has started to change 10 1. Startups staying private longer prior to IPO 2. More value captured by private investors 3. VC funds thus raising more growth & opportunity funds to back pro-rata in winners

Companies are raising larger amounts
of capital before going public $49 Median amount raised prior to IPO ($M) $43 Source: Dow Jones Venture 11 Source 2014 via EY $72 $83 $78 $101 2008 2009 2010 2011 2012 2013

Capital sources for late-stage private
companies up dramatically • Hedge funds • Mutual funds Traditional VC investors 12 Source: CB Insights Traditional public investors • Growth funds • Opportunity funds Moving Later Moving Earlier New Corporate VC Entrants • Google • Rakuten • Alibaba

IPOs are happening, they’re just
being delayed 2 3 2 2 2 1 Source: NVCA 2014 Yearbook 13 - Thomson Reuters 21 17 9 13 2008 2009 2010 2011 2012 2013 No. of IPOs with market cap > $1B No. of IPOs with market cap > $10B

So private investors capture more
value, encouraging greater pre-IPO funding. Early investors want to capture pro-rata Current market cap: $125B+ $150B+ $340B+ $0.2 $0.4 $0.8 $4.3 $18 $104 $150+ Cisco Amazon Microsoft LinkedIn Twitter FB Alibaba (est) Market Capitalization at IPO ($B) Previous Tech Cycle New Tech Cycle Source: Quigley Report 14 2011, FLAG Capital

But this is not 2000.
15 This is not 2000

The Kauffman Report was wrong.
It’s morning in VC 50x more internet users: 2.4B in 2012, 44M in 1995 120x faster online speeds: 6.7 mbps US average today vs. 56k modems People are mobile: Personal, location aware. US has 164M smartphone users & 119M tablet users in 2014. People are socially connected: 1.3B+ MAU on FB, 250M+ on TWTR, 300M+ on LNKD. Credit cards on file: 1B+ digital shoppers and $1.5T ecommerce spend globally. $35B Apple app store in 2014 Sources: U.S. Bureau of the Census, World Bank. As of Q2 June 2012. Akamai. 2014 Statista forecasts, 16 : eMarketer, WSJ

Public company startups are significantly
more mature than their 1.0 counterparts. Years to IPO (from 1st financing) 3.1 7.4 IPO in '00 IPO in '13 Revenue ($M) $35 $102 IPO in '00-01 IPO in '13-'14 Valuation/Revenue 13.3x Multiple Source: Age from NVCA 2014 Yearbook – Thomson Retuers, Revenue & Multiples from Pitchbook Tech Valuations Presentation 17 (June 2014) 5.3x IPO in '00-01 IPO in '13-'14

But late-stage private financing still
produces some lofty late-stage valuations When a concept works the competition is fierce More seed rounds as costs decline & sources of capital increase Seed Stage Early Stage Later Stage Source: Graphic 18 from Bullpen Capital Larger later stage rounds after Traditional VC validation Today’s VC

Thus late-stage valuations have risen
fastest in past 4 years. That’s the trend to watch carefully Median Pre-Money Valuation ($M) $3.2 $6.7 $19.9 $1,000 $100 $10 2010 to 2014 CAGR Source: Source; Q2 2014 PitchBook US Venture Industry Data Sheet, 19 * As of Q1 2014 $37.1 $66.1 $5.9 $11.3 $28.1 $62.3 $155.0 $1 17% 14% 9% 14% 24% Seed Series A Series B Series C Series D+ 2014* 2010

THE SHIFTING VC LANDSCAPE Mark
Suster - @msuster