Download - Slide Presentation
The All-Important Ecosystem
1
AGENDA
Summary of Funding Sources in the EcoSystem Impact on the Economy/Jobs Fund Raising and Resources Exit Scenario Threats and Opportunities
Source: Venture Impact 2009 by IHS Global Insight
2
Many Options to Choose From Entrepreneur Personal Funds “Friends and Family” Personal credit card and other borrowings Angel investors/Angel networks/Angel funds Venture capital Corporate direct investment Venture leasing Mezzanine Financing Merger and Acquisition Initial Public Offering Secondary/Follow-on Public Offering Private Placements – Debt & Equity Buyout/Acquisition Financing Corporate Debt
3
What is an Angel Investor?
Type of Capital Accredited?Portfolio Company
OwnershipExperience of
Angel
ACEF Equity Required Not Family Wide Variety
Mason/EBAN Equity ? ?Management or
Entrepreneur
Shane/SBA Debt or Equity Not Required Not Family or Friend Wide Variety
Sohl/CVR/UNH Equity ? ? ?
Individual who puts own private money directly into a private business (different definitions)
4
Angel Groups are Small - but Important - Subset of All American Angels
4,200,000
InformalInvestors
3 study estimates
Investors in Angel Groups
Active Angels
Center for Venture
Research
U.S. Millionaires
1,000,000
225,000
12,000
2009 Report from Spectrem: $1 millionaires down in 2008 27%, those with $5 million down 28% World Wealth Report (Capgemini): 19% drop in HNWI and 22.8% drop in wealth in 2008
5
Why Angel Networks/Funds Group of individual angel investors that recognize
the value in the Power of Mindshare Aggregating investment dollars Aggregating knowledge, experience Aggregating industry connections Collective Due Diligence
Mitigate Risk - Diversified portfolio
Higher Quality Deal Flow Greater Investment Clout – Strength in numbers
Continuity through Portfolio Management
6
Growth in Number of American Angel Groups
Sources: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-09 data)
0
50
100
150
200
250
300
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
7
8
Funding Gap
Investment (one round)
Nu
mb
er o
f In
vest
ors
$5MM $10MM
Seed
Venture CapitalGAP
Stage Pre-Seed Seed / Start-Up
Funding Gap between $1,000,000 and
$3,000,000/$5,000,000(depending on region)
Expansion(Launch)
Later(Growth)
Source Friends and
Family
Lone AngelsAnd
IncubatorsVenture Capital
Investment$25,000 to $100,000
$100,000 to $1,000,000
$3,000,000 and up
Early Stage
VC Ecosystem
LPs
Companies
Exits
Distrib to LPs, GPs
XYZ Ventures (“GP”, “Mgt Co”, “Manager”)
XYZ Fund #1
1996
Early Stage IT
$200M
5-8+ yrs
9
VC Ecosystem – One Venture Firm
LPs
Companies
Exits
Distrib to LPs, GPs
XYZ Ventures (“GP”, “Mgt Co”, “Manager”)
XYZ Fund #1
1996
Early Stage IT
$200M
5-8+ yrs
LPs
Companies
Exits
Distrib to LPs, GPs
XYZ Fund #2
1999
Early Stage IT
$400M
5-8+ yrs
LPs
Companies
Exits
Distrib to LPs, GPs
XYZ Fund #3
2003
Early Stage IT
$300M
5-8+ yrs
10
US Venture Capital Investment in Perspective
$16,700
$4,777
$2,000$800
$179$0
$2,000
$4,000$6,000
$8,000$10,000
$12,000$14,000$16,000
$18,000
NYSE MktValue
Equity MutualFunds
Hedge Funds Buyout Funds(Est)
VentureCapital
Source: AIMA, Investment Company Institute, NYSE.com, Thomson Reuters, NVCA
Assets Under Management
US GDP is $12.5 Trillion Venture
capital = 0.2% of US GDP
Bil
lio
ns
11
• $17.60 billion• ~57,000 deals
• 35% seed/startup• 47% early stage
• ~ 259,500 individuals
Angel Investors 2009• US$ 17.69 billion
• ~2,800 deals• 9% seed/startup
• 65% later/expansion capital• Total 794 firms (not all active)
Venture Capital 2009
Funding by Source and Stage- 2009
6,1608,272
2,640
1,596
4,672
5,511
5,912
5280
2,500
5,000
7,500
10,000
12,500
15,000
Seed Early Expansion Later
Investment Stage
US
$ M
illion
s
Venture CapitalAngels
Sources: Center for
Venture Research and
PwC MoneyTree
12
The Economic Impact of Angel and Venture Capital on the US Economy ...
It’s Not Just Deals and Exits!
So how do we measure the results?
13
Global Insight Study In 2008, venture backed companies:
Provided 12.05 million US jobs Had sales of $2.9 trillion
Represents 20.5% of GDP
Still dominated venture-created sectors 74% of telecommunications jobs 81% of software jobs 55% of semiconductor revenue 67% of electronics/instrumentation revenue
Source: Venture Impact 2009 by IHS Global Insight
14
Kauffman Foundation Study
Companies that benefited from Angel Investors: Alcoa, Home Depot, Google, Amazon (few examples)
Such companies are less than 1% of all companies but generated 10% of new jobs
15
JOB CREATORS
From 1980 to 2005… firms less than five years old accounted for all net job growth in the United States.
SBA: Business Dynamics Statistics Briefing
16
Job Creators
Source: Business Dynamics Statistics Briefing: Jobs Created from Business Startups in the United States.
Census Bureau and Kauffman Foundation, January 200917
Venture Capital Investment is Productive ...
For VC every dollar invested in 1970-2001, there was $9.88 in US revenue during 2008
For every $24,564 of venture capital invested in 1970-2001, there was one job in the year 2008
Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on jobs and revenues. If investment 1970-2008 ($456.2B) is used, the ratios would be $6.28 and $38,606 respectively
Source: Venture Impact 2008 by IHS Global Insight
18
Questions & Answers
19
Fundraising & Resources
20
AUM peaked at $276B, now $179B;# Firms down from 1023 peak to 794
0
200
400
600
800
1,000
1,200
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$0
$50
$100
$150
$200
$250
$300
# Firms AUM $B
Source: NVCA 2010 Yearbook prepared by Thomson Reuters
21
Economic Cycles Impact Both
Angel Investments $19.2B in 2008 $26B in 2007 $25.6B in 2006 $21B in 2005 $22.5B in 2004 $18B in 2003 $15B in 2002
UNH Center for Venture Research
VC Investments $28.3B in 2008 $29.4B in 2007 $22B in 2006
$21.5B in 2005 $21.5B in 2004 $19.4B in 2003 $21.4B in 2002
PWC Moneytree
22
Investment Marches On -Rumors that the Venture Industry has stopped investing are greatly
exaggerated
23
VC Investment Peaked in 2000;
2008 Was Down 8%; 2009 was $18B
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$ M
illi
on
In
vest
ed
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1Q10
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report,Data: Thomson Reuters
$103B
$28B
$18B
24
$0
$5
$10
Total VC $B 5.9 5.8 6.3 7.1 6.6 6.3 7.3 7.3 7.7 8.0 7.7 7.4 7.1 5.9 3.4 4.1 5.1 5.2 4.7
3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
Industry Investment is in a Smaller Size Band than 2002-mid2008 Period
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
25
First time venture fundings: The Industry is smaller but still funded 755 in 2009
-
500
1,000
1,500
2,000
2,500
3,000
3,500
First Fundings 1,140 1,291 1,412 2,439 3,365 1,219 831 760 929 1,038 1,233 1,331 1,232 755 208
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1Q10
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report,Data: Thomson Reuters
26
Economy Affects ACA Member Investment in 2009
Average Number of Investments Per Group
2007 7.3
2008 6.3
2009 6.3
PRELIMINARY DATA: ACA Confidence Survey, March 2010 Self reported data, not verified, still collecting data
27
28
Range of Performance
Increases in valuation (up rounds) dominated until the economic meltdown
Equilibrium being restored?
Data: Fenwick & West Quaterly Survey
Valuations in Silicon Valley
0%
20%
40%
60%
80%
100%
Q1’06 Q2’06 Q3’06 Q4’06 Q1’07 Q2’07 Q3’07 Q4’07 Q1’08 Q2’08 Q3’08 Q4’08 Q1’09 Q2’09 Q3’09 Q4’09
Source: Fenwick & West Quarterly Surveys
Perc
en
t
DownFlatUp
The Exit Scene - the importance of acquisitions has become clear over the past several years
29
0
50
100
150
200
250
300
# IPOs 270 264 41 22 29 93 56 57 86 5 0 1 0 0 5 3 4 14
1999 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09YTD1
0
A Capital Crisis?Few IPOS Post-Bubble; Many Good Companies in the Wings
Source: Thomson Reuters/National Venture Capital Association
30
0
20
40
60
80
IPOs Done 12 31 5 0 1 0 0 5 3 4 14
In Reg on last day 72 60 37 42 38 28 26 10 18 29 45
3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 YTD
What’s in the IPO Pipeline?Dismal Short Term…Don’t confuse “uptick” with “recovery”…
Source: Thomson Reuters/National Venture Capital Association – Updated 4/23/2010
31
Those Few Acquisitions Which Do Happen Are Generally Awful
0%
20%
40%
60%
80%
100%
% o
f K
no
wn
M&
A E
xit
s
>10x TVI 1 2 2 7
4x-10x TVI 2 3 7 10
1x-4x TVI 3 2 2 9
< TVI 8 5 11 8
1Q09 2Q09 3Q09 4Q09
Source: Thomson Reuters/National Venture Capital Association – Undisclosed txns are prorated
32
Why aren’t portcos being snapped up? Sure we could keep buying small companies
and G.E.-ize them. But we've learned that it's better to partner with the #3 company that wants to be #1 than to buy a tiny company or go it alone
Jeffrey Immelt CEO of GE quoted in Post-
American World
33
Venture Exit Counts- IPOs and M&A by Year - 2008 is Dismal!
0
100
200
300
400
500
600
700
Nu
mb
er o
f Is
sues
M&AIPO
M&A 74 100 97 116 164 209 240 317 353 319 284 346 351 370 360 335 262
IPO 220 166 202 270 136 77 260 264 41 24 29 93 56 57 86 6 12
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Thomson Reuters/National Venture Capital Association
34
Angels are fine with M & A
Quarterly PE Exits by Corporate Acquisition, IPO and Secondary Sale
Percentage of capital invested by industry
35
Performance
36
Venture Capital Returns: Still Around 20% over the long haul net to the LPs
Through Q3 2009Source: Cambridge Associates U.S Venture Capital Index®, the performance benchmark of the National Venture Capital Association
Period Ending 1 Qtr 1 Year 10 Year 20 Year
09/30/2009 (Current) 2.3% -12.4% 8.4% 23.1%
03/31/2009 (6 mos ago) -2.9% -17.5% 26.2% 22.5%
12/31/2008 (Prior) -12.5% -16.5% 35.0% 22.3%
DJIA 15.8% -7.4% 1.6% 9.2%
NASDAQ Composite 17.7% 1.5% -2.5% 7.8%
S&P 500 15.6% -6.9% -0.2% 8.0%
37
A Word About Return Expectations
Angel investing is VERY risky 1 or 2 of every 10 investments brings most of return Hard to tell which companies will return
Current return estimates for portfolios: Annual IRR of 27% - 2.6X in 3.5 years*
If business gets VC funding later, angel investment is often diluted
Some really great angels therefore looking for 10 to 30X potential Wide variety of expectations, depending on mix of
motivations to be an angel Correct valuation is critical
*Source: Rob Wiltbank, Willamette University, November, 2007 paper 38
Threats and Opportunities….
The Crystal Ball?
39
“Buy low… sell high” is easier if you really buy low!
CompanyTotal Venture
Investment $M
Recent Market Cap/ Acq Price $M
[1/2009]
Cisco 3 89,760
eBay 7 16,460
Amazon.com 8 20,550
Apple 9 71,450
YouTube 12 1,650
Google 40 90,610
JetBlue 173 1,710
WebVan 441 0Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
40
Key US VC building blocks ...Our Ecosystem!
Capital formation Prudent man rule – enabled pension investment LP laws Capital gains tax reduction
Empowered entrepreneurs Capital gains tax reductions Stock options/team building tools Reasonable bankruptcy laws
Protect companies – IP laws Abundant customers willing to do business with SMEs Exit markets – the NASDAQ Face-to-face investing/proximity Cultural acceptance
41
Key Policy Issues for Angels – and the Entrepreneurs They Invest in Senate Financial Reform Bill
1,300 page bill with two problem paragraphs Increase accredited investor definition for inflation Repeal Federal preemption of state regulation over “accredited
investor” securities offerings
Federal Tax Credits for Angels ACA consulted on two of three bills being drafted
Obama Administration Stimulus (Reduce taxes on QSBS) Increase Qualified Small Business Stock exemption to 100% and
extend it to more years.
42
Questions & Answers
43