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The State of Venture
Capital
March 2, 2002
John GabbertSr. Director, Worldwide Research
VentureOne Corporation
Three Key Elements for
a Robust Venture
Industry Fundraising
Investment
Liquidity
Fundraising
$48.2
$90.1
$50.5
$29.8
$17.0$12.2
$7.6$6.8$6.2$2.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Venture Capital Fundraising Healthy in 2001
Commitments to Venture Capital Funds
Fu
nd
s R
ais
ed
($
B)
Source: VentureOne
$9.0$9.5
$11.7
$17.9
$25.6
$22.7
$25.2
$16.5
$22.7
$11.5
$8.7$7.6
$6.8
$0
$5
$10
$15
$20
$25
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
But Momentum is SlowingCommitments to Venture Capital Funds
Fu
nd
s R
ais
ed
($
B)
Source: VentureOne
1995 1996 1997 1998 1999 2000 2001
$7.6 $12.2$17.0
$29.8
$50.5
$90.1
$48.2
$6.8 $9.8 $12.8$17.6
$47.2
$91.6
$32.1
$0
$20
$40
$60
$80
$100
Investment Fundraising
Fundraising Far Outpaces Investment in 2001
Fundraising vs. Amount Invested
Am
ou
nt
Investe
d
($B
)
Source: VentureOne
Fundraising Summary
Commitments to venture capital were flat in 4Q01; however,
2001 fundraising was still well above the norm.
Fundraising is becoming more difficult, especially for
newer or unproven funds.
Over half of VC dollars are now in funds greater than $500 M.
Greatest amount of VC money in history available to invest in
entrepreneurship.
Investment: Overall
$6.8 $9.8 $12.8 $17.6
$47.2
$91.6
$32.1
2780
5779
4400
245921491888
1313
$0
$25
$50
$75
$100
1995 1996 1997 1998 1999 2000 2001
0
1,000
2,000
3,000
4,000
5,000
6,000
Amount Invested ($B) Number of Deals
2001: A Sharp Contrast to 2000’s Boom
Equity into Venture-Backed Companies
Am
ou
nt
Investe
d
($B
)N
um
ber o
f Deals
Source: VentureOne
$4.8$6.0
$10.3$11.4
$19.5
$27.0$24.2
$6.3$6.6
$22.3
$18.0
$10.6$8.6
610629736805
1155
1322
15911711
1451
11241070
755665
$0
$5
$10
$15
$20
$25
$30
$35
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
300
600
900
1,200
1,500
1,800
Amount Invested ($B) Number of Deals
Investment Levels Off at Year’s End Equity into Venture-Backed Companies
Am
ou
nt
Investe
d
($B
)
Nu
mb
er o
f Deals
Source: VentureOne
$4.6$5.0
$5.5 $5.8
$7.5
$10.0
$9.0
$10.0 $10.0
$8.0 $8.0
$6.5$7.0
$0
$2
$4
$6
$8
$10
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Median Round Size Gets a Boost in 4Q’01
Median Amount Invested Per Round
Med
ian
Am
ou
nt
Investe
d
($M
)
Source: VentureOne
Positively Affecting Later-Stage Rounds
Median Amount Invested by Round Class
$22
$11
$6$6
$15
$7$8
$4$5
$1.6$1 $0.5
$0
$5
$10
$15
$20
$25
4Q98 2Q99 4Q99 2Q00 4Q00 2Q01 4Q01
Later Round
Second Round
First Round
Seed Round
Med
ian
Am
ou
nt
Investe
d
($M
)
Source: VentureOne
Investment Shifts to Second & Later Rounds
Deal Flow by Round Class
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001
Later Round
Second Round
First Round
Seed Round
% o
f D
eals
Source: VentureOne
IT Dominates, Healthcare Recaptures
Investor InterestEquity Investment by Industry Sector
0%
20%
40%
60%
80%
100%
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Healthcare
Products &Services
InformationTechnology
% o
f In
vestm
en
t
Source: VentureOne
$11.9
$13.9
$15.0$15.0
$11.0
$6.0$6.0
$3.6$2.9
$7.2$5.6
$4.4 $3.9
584
767
578
903
757
883
421370
663
480404 383
352
$0
$4
$8
$12
$16
$20
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
200
400
600
800
1,000
Total Invested ($B) Total # of Deals
IT Investment Still Falling Equity Investment in Information Technology Companies
Am
ou
nt
Investe
d
($B
)N
um
ber o
f Deals
Source: VentureOne
Communications, Software Are Cornerstones of IT
IT Investment by Sector
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001
Software
Semiconductors
Information Services
Electronics
Communications% o
f In
tern
et
Investm
en
t
Source: VentureOne
Investment: Valuations
$11.1$9.5
$10.7$8.5$8.1
$13.0
$15.6
$21.0
$25.0
$16.7
$0
$5
$10
$15
$20
$25
$30
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
2001 Valuations Fall Below 1999 Levels
Median Premoney Valuation by Year
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
$17 $18
$22 $22 $22
$27
$24
$27
$22
$18 $18
$14$17
$0
$5
$10
$15
$20
$25
$30
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Valuations Recover Somewhat in 4Q’01
Median Premoney Valuation
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Later-Round Valuations Boost Overall Numbers
Median Premoney Valuations by Round Class
$101
$43
$35$45
$16$18
$6$7
$14
$6$3 $3$0
$20
$40
$60
$80
$100
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Later Rounds
Second Round
First Round
Seed
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Healthcare Valuations Up Significantly
Median Premoney Valuations by Industry
$30
$23
$15
$23
$13
$31
$16$14
$27
$0
$10
$20
$30
4Q98 2Q99 4Q99 2Q00 4Q00 2Q01 4Q01
InformationTechnology
Healthcare
Products &Services
Med
ian
Pre
mon
ey V
alu
ati
on
($
M)
Source: VentureOne
Investment: Regions
Texas Edges Out Boston for #3 Spot2001 Regional Investment in the US
Bay Area 32%
All Other US27%
Southern California8%
Texas8%Boston
7%
Potomac5%
New York City4%
Midwest5%
Research Triangle1%
Washington State3%
Source: VentureOne
Bay Area Investment StabilizesInvestment in Bay Area Venture-Backed Companies
$4.4
$7.6
$9.2
$8.1$8.5
$6.3
$3.3$2.8
$2.1 $2.2$2.3
$3.7
$1.5
$0
$2
$4
$6
$8
$10
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
Am
ou
nt
Investe
d
($B
)
Source: VentureOne
Equity Financing Summary
Equity financing into venture-backed companies leveled off in 4Q’01.
Overall equity investment in 2001 was still the third highest amount on record.
Valuations and median round sizes recovered slightly at year’s end.
Early-stage venture financing has fallen more rapidly than later-stage.
The time between financing rounds is expanding.
Liquidity
$2.7$4.5$5.3$7.2$11.6
$20.3$23.7
$45.5
$15.7
$8.7$13.2
$5.4$4.2
69
81
939898
115108
122
8479
86
53
70
$0
$10
$20
$30
$40
$50
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
25
50
75
100
Amount Paid ($B) Number of Transactions
M&As Continue to SlipTransactions and Amount Paid in M&As
Am
ou
nt
Paid
($
B)
Source: VentureOne
Nu
mb
er o
f Tra
nsactio
ns
$0.8$0.2$0.3$0.5
$1.5
$6.7
$3.5
$7.4$7.4$5.3$5.3
$1.5$0.4
58
44
18
71
42
69
777575
21
7
$0
$2
$4
$6
$8
4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01
0
20
40
60
Amount Raised ($B) Venture-Backed IPOs
IPO Liquidity Up Marginally in 4Q01 … Deals and Amount Raised Through IPOs
Am
ou
nt
Rais
ed
($
B)V
en
ture
-Backed
IP
Os
Source: VentureOne
Liquidity Summary
The IPO and M&A markets for venture-backed companies continued their dramatic declines from the record levels of 1999 and early 2000.
IPO volume in 2001 was at its lowest in years.
The amount paid in M&A transactions declined throughout 2001, falling to the lowest level since 1995.
IPO companies in 2001 were more mature, but the time from initial funding to M&A is still falling.
Conclusions & Implications The bad news:
- Liquidity is extremely difficult- VCs are investing much more slowly and cautiously- Valuations are down across the board- Many VC-funded companies will fail to raise more $
The good news:- Liquidity windows open and close- VCs do have money to invest- Expectations are much more realistic- Those companies that succeed in raising $ will have more
board involvement, better resources, lower costs and less competition
- Truly great companies will emerge from this period
More Information
For a copy of this presentation, contact corpcomm@ventureone.com or call +1 (415) 538-2658.
Email products@ventureone.com for: VentureSource: Instant access to venture capital
intelligence VentureOne Publications: VentureSource News
(daily) and the Venture Capital Industry Report (annual).
Custom Report Services: Comparable Valuation Reports and specialized queries
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