Venture Capital Outlook 2016 1
Mark Suster & Kevin Zhang @msuster & @kevinyzhang

Some of our industry’s smartest
thinkers have a different world view. So who’s right? 2

One thing I’m certain of
- we’re in a bubble Trade in an asset at a price that strongly deviates from asset's intrinsic value A surge in prices, more than warranted by fundamentals & usually in a particular sector. Followed by a drastic drop in prices as a selloff occurs

Widescreen Template - Aug. 2015
So will 2016 be the year the craziness finally ends?

Who the fuck knows. I’ve
been calling the peak for 2 years

While many great companies are
being created, I call BS on 50 new billion- dollar US companies in just 18 months 6 Number of startups valued at $1B+ in the US 0 25 50 75 100 Jan 2014 Jan 2015 Sep 2015 80 51 30 Source: WSJ and DowJones VentureSource

Late stage valuations (D round
non-VC) are frothy, driven by demand from outsiders (vs. C round led by VCs). We see similar trends now happening in Seed & A rounds driven by crowdfunding. 7 Late stage private company median valuations ($M) Public markets are more reasonable (iShares US Tech ETF, 7/1/12 to 6/30/15 40 80 120 160 200 2012 2013 2014 1H 2015 88 100 136 184 50 57 70 83 Series C Series D+ Source: Pitchbook 2H 2015 VC Valuations & Trends Report, iShares US Tech ETF CAGR CAGR: 15% 18% 28%

And valuations for the ‘most
funded’ club continue to grow while the rest of the market has started to show discipline. 8 Global unicorn valuation ($B) 0 1.5 3 4.5 Jan 2014 Jul 2014 Jan 2015 Jun 2015 4.1 3.8 3.1 2.8 1.9 1.61.7 1.5 Median Average Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015

Median revenue multiples very high
relative to history 9 Source: CBInsights, April 2015, based on press report estimates and SEC filings of private company valuations and sales Median 11x+

While public multiples reverting to
historical mean (i.e. SaaS now at 4-6x) 10 Source: Scale Venture Partners SaaS Index - EV divided by most recent quarterly revenue multiplied by 4, Jul 8 2015 Public SaaS EV/revenue median multiples

Late-stage private eCommerce multiples more
than double that of public comps 11 Source: GCA Savvian Internet Commerce multiples, CBInsights, press report estimates and SEC filings of private eCommerce company valuations and sales These companies are real companies but we masked them to avoid the company-by-company debate. Public eCommerce EV/CY revenue median multiples 0 1 2 3 4 Dec '13 Mar '14 Jun '14 Sep '14 Dec '14 Mar '15 Jun '15 Sep '15 2.3 2.2 3.1 2.8 2.1 2.1 2.7 2.4 Late-stage private eCommerce EV/CY revenue median multiples 0 2 4 6 8 10 12 14 0 5 10 15 20 25 Company 6 2.5 Company 5 12.9 Company 4 12.0 Company 3 4.4 Company 3 5.3 Company 2 6.8Company 1 5.7 Median: 5.6x Dec ‘13 Jun ‘14 Dec ‘14 Jun ‘15 Dec ‘15 Median: 2.4x

Companies are increasingly exiting at
or below last private valuation 12 Source: Goldman Sachs - Views from the Valley – Volume 2 – 100 unicorns and counting, Jul 2015 Dec 2014 Jun 2015Jan 2014 3 <= last private valuation 5 <= last private valuation 12 total billion+ exits in 2014 7 total billion+ exits in 1H 2015

Are we smarter than the
public markets?

Meanwhile, at the other end
of our market - crowdfunding exploded the last 2 years, growing at 153% CAGR 14 Global equity crowdfunding amount ($B) 0 1 2 3 2013 2014 2015E 2.6 1.1 0.4 Source: 2015CF - The Crowdfunding Industry Report by Massolution

15 Many syndicates have deal-level
carry. This has led some to become super promoters. Some behavior in the less reputable crowdfunding platforms bordering on criminal. P.T. Barnum

16 Ambitious technologies Superior monetization
Despite hype, valuations and froth - amazing companies are being created. Perhaps more than we’ve ever seen

What is driving some of
the craziness? 17

18 Everyone wants in on
the action

Non-VC investors doubled participation in
mid & late stage investments, now in nearly 2/3rd of deals 19 Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences Non-VC participation in mid & late stage startups 0% 15% 30% 45% 60% 2009 2010 2011 2012 2013 2014 Apr 2015 59% 48%46% 39%37% 33%31% CAGR ’09-’14 9%

20 Corporates make up the
largest source of Non-VC investors and are less valuation sensitive CAGR ’09-’14 0% 13% 25% 38% 50% 2009 2010 2011 2012 2013 2014 2015 44% 35%35% 31% 28%28% 25% 27% 20% 17% 11% 13% 8%9% Asset Mgmt Family Office Hedge Fund Mutual Fund Corporate Asst Mgmt Family Office Hedge Fund Mutual Fund Corporate / Corporate VC 18% 7% Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences Non-VC participation in mid & late stage startups

21 Other growing sources of
Non-VC money include LP co-investments, hedge funds & mutual funds 0 25 50 75 100 2009 2010 2011 2012 2013 2014 2015P Asset Mgmt Family Office Hedge Fund Mutual Fund CAGR ’09-’14 44% 73% 66% 45% 74 38 46 32 42 26 40 10 34 14 8 31 15 19 8 14 7 9 2 12 3 5 100 57 90 47 Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences. 2015P based on YTD data Number of mid & late stage startups by investor type

22 Round sizes have exploded
and are highly correlated with lack of price discipline 0 30 60 90 120 2012 2013 2014 Asset mgmt Corporate / Corporate VC Family office Hedge fund Mutual fund PE VC 103 35 60 48 35 20 71 20-25 Source: CBInsights 1/1/09-4/20/15 VC-backed, US startups that have raised $15M+ total, ex. life sciences Median round size for mid & late stage startup rounds by investor type

78% of billion+ financings are
led by non-VCs so far in 2015, up from 60% last year 23 0 25 50 75 100 Jan 2014 Jan 2015 Sep 2015 80 51 30 Source: WSJ and DowJones VentureSource, Fenwick & West 60% led by non-VCs 78% led by non-VCs Number of startups valued at $1B+ in the US

Conclusion 24 • Let there
be no doubt: private tech markets are over-valued • Driver is influx of new capital sources with less discipline • Fund markups for some might be filled with Quirky surprises • Many VCs walking portfolio through private RIP Good Times speeches • Yet tech innovation will continue to grow as proportion of economy, leading to continued returns for best VCs in industry