iva 2009 keynote

29
…on the bitter and the sweet David Cowan Bessemer Venture Partners ISRAEL VENTURE ASSOCIATION 2009 ר ר ר ר ר ר ר ר ר ר רר ר ר ר ר ר ר

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David Cowan of Bessemer Venture Partners addresses the 2009 conference of the Israel Venture Association in Tel Aviv on May 19, 2009.

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Page 1: IVA 2009 Keynote

…on the bitter and the sweet

David Cowan

Bessemer Venture Partners

ISRAEL VENTURE ASSOCIATION 2009

ר ַמ� ל ַה� ַע�תֹוק �ַמ ַה� �ְו

Page 2: IVA 2009 Keynote

Bessemer Venture PartnersFounded 1911

Mumbai

HerzliyaBostonNew York

Califonia

Page 3: IVA 2009 Keynote

Bessemer Venture PartnersFounded 1911

Mumbai

HerzliyaBostonNew York

Califonia

P-ComA.R.T.

Page 4: IVA 2009 Keynote

Andre PerodFinance Professor

Harvard Business School

$100 Trillion

Page 5: IVA 2009 Keynote

Page 13

USA Venture-backed M&A and IPO transactionsExit activity falls in the wake of the financial crisis

45

101

2111 13

2430 33

51

25

3

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Q1200

9

19.5 19.2

1.8 1.6 1.53.7

6.8

0.6

5

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Q1200

9

US venture-backed M&A transactions $Band number of transactions

US venture-backed IPO amount raised by transactions $B and number of transactions302 200 390 393 361 480 465 471 462 348 68 250 202 22 20 23 67 43 56 76 7

Source: Dow Jones VentureSource Note: chart scales vary for clarity

2.4

Page 6: IVA 2009 Keynote

Pre Money valuations in Israel have caught up to the US

$7.8 $8.0 $9.0 $12.0 $13.0 $7.0 $20.0

2002 2003 2004 2005 2006 2007 2008

$10.8 $10.0 $12.3 $15.0 $18.0 $17.4 $23.1

2002 2003 2004 2005 2006 2007 2008

IsraelUnited StatesUS$ M

Source: Dow Jones VentureSource

US$ M

Page 7: IVA 2009 Keynote

$3.9

$6.0

$7.8$8.2

$7.8$7.9$8.1$8.1

$7.3$6.6

$7.8$7.6

$6.5477

601635

701706725683

791

653640695713

640

$0

$2

$4

$6

$8

$10

1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09

0

150

300

450

600

750

Amount Invested ($B) Number of Deals

Investment Activity Declines in 1Q ‘09Deal Flow and Equity into Venture-Backed Companies

Am

ount

Inve

sted

($B) N

um

ber of Deals

Source: Dow Jones VentureSource

Page 8: IVA 2009 Keynote

Are the LPs coming back?

1997 is last year with >0 median and mean return

Source: Thomson/Reuters. Data as of 6/30/08.

Page 9: IVA 2009 Keynote

Why have LPs stayed in so long?

Venture Capital Vintage Year Performance

6.6%

16.8%

1.2%

8.0%

1.9%

9.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

10 years 20 years

Upper Quartile US Venture Funds S&P 500 NASDAQ Composite

Source: Returns are based on the cumulative net IRRs of U.S. venture capital funds formed in vintage years 1998-2007 and 1988-2007, respectively. Source: Thomson Reuters VentureXpert. Public market return data based on an ending date of June 30, 2008 for both indices. Source: Thomson Reuters/NVCA

Page 10: IVA 2009 Keynote

“Top Quartile IRR” is a tease.

Economic returns are concentrated among the top quartile performers

Source: Cambridge Associates PE industry Review 2008

US Core/ Core Plus

Bonds

Em. Mkts. Equity

Global ex. US Equity

USLarge-Cap

US Small-Cap

Real Estate

US Buyout

US Venture Capital

(n=35) (n=32) (n=16) (n=131) (n=47) (n=197) (n=478) (n=853)

25th Percentile 8.12 17.98 12.52 14.08 15.97 26.87 23.39 21.5875th Percentile 7.66 15.51 9.95 12.35 13.72 10.56 6.15 -3.97

Median 7.79 17.17 10.92 13.08 14.90 16.45 13.01 4.54

Ave

rag

e A

nn

ua

l

Co

mp

ou

nd

Re

turn

(%

)

30%

25%

20%

15%

10%

5%

0%

(5%)

0.46

2.47

2.571.73

2.25

16.31

17.2425.55

Delta between top & bottom quartiles

Page 11: IVA 2009 Keynote

When Great Companies Were Founded…When Great Companies Were Founded…

1980 1982 1984 1986 1988 1990 1992 1994 1996

FORE SYSTEMS

Page 12: IVA 2009 Keynote

When Great Companies Were Founded…When Great Companies Were Founded…

2001 2002 2003 2004 2005 2006 2007

Page 13: IVA 2009 Keynote

Big Markets

• Energy

• Internet

• Stem Cells

• Security

• Mobile

• India

• Web Video

• Social Gaming

• Virtualization

• SaaS

Page 14: IVA 2009 Keynote

An LP inversion? Re-thinking conventional wisdom on fund access in venture capital

1. Endowments Stable, knowledgeable staffs Efficient decision-making Good causes Low maintenance (no FOIA, etc)

2. Fund-of-funds Knowledgeable Active on terms and monitoring May have to wait for next fund to be raised Need some attention so they can market funds

3. Pension funds Rotating staff Regulated High maintenance Large pools of capital being replenished with recurring stream of more funds

Subject to Liquidity IssuesMay be re-thinking Alt Asset Strategies

In a position to get into better funds? How will they take advantage of the moment?

Page 15: IVA 2009 Keynote

Sovereign Wealth FundsAbu Dhabi Investment Authority (ADIA) United Arab EmiratesGovernment Pension Fund - Global NorwayGovernment of Singapore Investment Corporation SingaporeSaudi Arabia Monetary Authority (SAMA) Saudi ArabiaKuwait Investment Authority (KIA) KuwaitChina Investment Corporation (CIC) ChinaHong Kong Exchange Fund Hong KongTemasek SingaporeOil & Gas Fund RussiaQueensland Investment Corporation (QIC) AustraliaQatar Investment Authority (QIA) QatarFuture Fund AustraliaPension Reserve Fund FranceLibyan Investment Authority (LIA) LibyaFonds de Regulation des Recettes (FRR) AlgeriaAlaska Permanent Reserve Fund United StatesVictorian Funds Management Corporation (VFMC) AustraliaBrunei Investment Authority BruneiNational Pension Reserve Fund IrelandKhazanah Nasional BHD MalaysiaKingdom Holding Company (KHC) Saudi ArabiaNational Oil Fund KazakhstanKorea Investment Corporation (KIC) South KoreaNational Development Fund (Fonden) VenezuelaAlberta Heritage Fund CanadaNew Mexico Permanent Trust Funds United StatesEconomic and Social Stabilization Fund (FESS) ChileNational Stabilization Fund (NSF) TaiwanPublic Investment Fund (PTF) Saudi ArabiaDubai International Capital United Arab EmiratesExcess Crude Fund Nigeria

Page 16: IVA 2009 Keynote

More Sovereign Wealth FundsExcess Crude Fund NigeriaNew Zealand Superannuation Fund New ZealandOil Stabilization Fund IranMubadala United Arab EmiratesDevelopment Fund for Iraq (DFI) IraqPula Fund BotswanaState General Reserve Fund OmanIstithmar World United Arab EmiratesPermanent Wyoming Mineral Trust Fund United StatesOil Stabilization Fund MexicoTimor-Leste Petroleum Fund East TimorState Oil Fund (SOFAZ) AzerbaijanHeritage and Stabilization Fund Trinidad & TobagoOil Stabliization Fund ColombiaState Capital Investment Corporation VietnamChile Pension Reserve Fund ChileInvestment Fund for Macroeconomic Stabilization VenezuelaRevenue Equalization Reserve Fund (RERF) KiribatiFund for Future Generations GabonNational Fund for Hydrocarbon Reserves MauritaniaReserve Fund for Oil AngolaEmirates Investment Authority (EIA) United Arab EmiratesInvestment Corp of Dubai United Arab EmiratesHong Kong Monetary Authority Investment Portfolio Hong KongNational Oil Account São Tomé and PríncipeNational Wealth Fund RussiaOil Income Stabilization Fund MexicoOil Revenue Stabilization Account SudanPalestine Investment Fund Palestinian TerritoriesReserve Fund RussiaReserve Fund for Oil AngolaTaiwan National Stabilisation Fund TaiwanTimor-Leste Petroleum Fund Timor-Leste

Page 17: IVA 2009 Keynote

Resistant: Open Source, Virtualization, Low Cost Recurring

Revenue Models

Portfolio Analysis of Exposure to Changes in GDP

Immune: Cure Cancer , Cost Saving Non-Elective HC Services

Exposed: Consumer Products, Internet Display Ads, Elective

Surgery

Source: Scale Venture Partners

Page 18: IVA 2009 Keynote

Since 2002, $2.8 billion invested in 325 companies

Page 18

Israel: Current status of VC-backed companies by year of initial financing

30

8

108

23

169

276 18

1996-2001

2002-2008

IPO M&A Private & Independent Out of Business

225

Source: Dow Jones VentureSource

Year of initial VC financing

325

► In Israel 325 companies have received initial VC financing globally since 2002 and US$2.8 billion has been invested in them to date.

► In the israel 70 Venture-backed M&A and IPO transactions were at 2007-2008

532

Page 19

Total capital invested to date in Israel VC-backed companies by year of initial financing and current status

$2,536.3

76

$134.9

$28.0

1996-2001

2002-2008

Source: Dow Jones VentureSource

Year of initial VC financing

►Israel Venture-backed M&A and IPO transactions value at 2007-2008 is $ 3.9B

$2.8B

$5.7B

Source: Dow Jones VentureSource

Page 19: IVA 2009 Keynote

Bessemer’s Law of Internet Efficiency

Cost

1995 1999 2003 2007

“The time and money required to

produce (design, develop, test, launch,

scale) a basic e-commerce application

drops in half every two years.”

$300

$20,000

NetScape

Apache

Java

ActiveX

Flash

Shockwave

PHP

XML

Ruby on Rails

service APIs

Amazon S3

AJAX

Web Application Development

Page 20: IVA 2009 Keynote

Votizen

Page 21: IVA 2009 Keynote

Stage Shifting

IsraelNumber Of Deals

% Of Deals

Amount Raised ($M)

% Of Amount Raised

Median Amount Raised ($M) 1Q08/1Q09 Q408/Q109

Seed Round 3 9% 5 3% NS NA NA

First Round 8 24% 23 14% 2.6 -86% -67%

Second Round 8 24% 40 24% 4 -83% -63%

Later Stage 13 39% 80 49% 5.25 -64% -28%

Grand Total 33 100% 163 100% 3 -75% -51%

USASeed Round 22 5% 10 0% 0.415 -78.7% -59.5%

First Round 122 26% 672 18% 3.5 -62.2% -39.6%

Second Round 119 25% 902 24% 5.5 -45.9% -34.8%

Later Stage 195 41% 2111 55% 7.5 -39.2% -32.3%

Recapitalization 12 3% 138 4% 8.15 -61.4% -41.2%

Grand Total 470 100% 3833 100% 5.5 -47.6% -34.8%

2009

Source: E&Y

Page 22: IVA 2009 Keynote

Source: Lerner and Schoar [2007]

Page 23: IVA 2009 Keynote

23

Bessemer’s Current Cleantech Portfolio

Sector Current Investments Seeking New Investments

Batteries andEnergy Storage

Smart Grid

Solar Power

Lighting

CleanTransportation

India

•Utility Scale•Electric Vehicles

•High MPG at low cost•Electric Vehicles

•Long-term opportunities to reduce cost, raise efficiency

•Opportunities throughout LED Lighting

•Smart Meters•Software Infrastructure

Page 24: IVA 2009 Keynote

Israel Is A Center for Global Cleantech Activity

• Source: d&a info cleantech portal; company information

Over 300 companies active across multiple Cleantech segments…

Page 25: IVA 2009 Keynote

And Israel Cleantech VC Deal Pace Has Been Increasing

Deal pace of Israeli cleantech investments

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 YTD 2009

Dea

ls

• Source: Cleantech Group LLC, Venture Investment Database

Page 26: IVA 2009 Keynote

26

Venture Capitalists Need to Get Back to Venture CapitalAnd Develop the Ecosystem of Staged Financing Opportunities

Stage of Company

Technical Research

Productization

Commercialization

Revenue Ramp / Pilot Project Development

Expansion / Project Equity

Mature Growth / Project Finance

2005-2008

Ven

ture

Cap

ital

Hed

ge F

un

ds /

Pri

vate

Eq

uit

y

Pu

blic M

ark

ets

2009-

Ven

ture

Cap

ital

Part

ners

/ P

E

Pu

blic

Lab

s /

En

trep

r.

Page 27: IVA 2009 Keynote

Page 22

VCs are increasing their reserves for follow-on investments..► Generally, relative to a year ago, have "reserves for follow-on

investment" in your portfolio companies: Increased, decreased or stayed the same?

8%

16%

76%Increased

Decreased

Stayed the same

Page 28: IVA 2009 Keynote
Page 29: IVA 2009 Keynote

…on the bitter and the sweet

David Cowan

Bessemer Venture Partners

ISRAEL VENTURE ASSOCIATION 2009

ר ַמ� ל ַה� ַע�תֹוק �ַמ ַה� �ְו