some perspectives on private equity from my last 100...

GROVE STREETGROVE STREETGROVE STREETGROVE STREET

A D V I S O R SA D V I S O R SA D V I S O R SA D V I S O R S LLCLLCLLCLLC

Confidential – Proprietary to GSA

Some perspectives on private equity

from my last 100 annual meetings

May 16, 2007

Caesarea Center

4th Annual Conference

Some perspectives on private equity

from my last 100 annual meetings

May 16, 2007

Caesarea Center

4th Annual Conference






IntroductionsIntroductionsIntroductionsIntroductionsIntroductionsIntroductionsIntroductionsIntroductions

• Grove Street Advisors: An investment advisory firm solely focused on private equity fund investing

· Founded in May 1998 - currently 7 Partners/30 total staff - all from the “operating side” of the industry

· Over $5 billion under management for 9 clients

- 4 U.S public pension funds, 3 international pension funds, 1 family office, 1 Israeli insurance company

· Invested with about 120 private equity teams covering the full range of private equity

• Clint Harris: Background

· 8 years founder and Managing Partner with GSA

· 14 years as a founder and “GP” with Advent International

· 7 years with Bain (the consulting firm)

· 5 years in serving on nuclear submarines

· B.E. Engineering and MBA degrees

· Active in Israel for more than 15 years




AgendaAgendaAgendaAgendaAgendaAgendaAgendaAgenda

• Private equity’s recent history and

current outlook

· Venture capital

· Buyouts

• An investors perspective

· How do you pick the winners

· Two important cycles




Global Private Equity Arena Global Private Equity Arena Global Private Equity Arena Global Private Equity Arena Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006

Global Private Equity Arena Global Private Equity Arena Global Private Equity Arena Global Private Equity Arena Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006Total Capital Raised 2004 to 2006

Venture

Expansion

Buyouts

Venture

Expansion

Buyouts

VC

Exp.

B/Os

N.America Europe R.O.W.

$427B $163B 2,430.0%

Total =$660B

0

20

40

60

80

100%

Private Equity Style

GeographyProven Emerging Unproven

Israel VC

Source: PEA, Venture Economics & GSA Estimates

China VC




Relative Private EquityRelative Private EquityRelative Private EquityRelative Private EquityFinancial PerformanceFinancial PerformanceFinancial PerformanceFinancial Performance

Top Quartile IRRsTop Quartile IRRsTop Quartile IRRsTop Quartile IRRs

Relative Private EquityRelative Private EquityRelative Private EquityRelative Private EquityFinancial PerformanceFinancial PerformanceFinancial PerformanceFinancial Performance

Top Quartile IRRsTop Quartile IRRsTop Quartile IRRsTop Quartile IRRs

Venture: US vs Europe

-20%

0%

20%

40%

60%

80%

100%

120%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

US Europe

Buyouts: US vs Europe

-20%

0%

20%

40%

60%

80%

100%

120%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

US Europe

Source: Venture Economics




Private Equity Capital RaisedPrivate Equity Capital RaisedPrivate Equity Capital RaisedPrivate Equity Capital Raised

Proven MarketsProven MarketsProven MarketsProven Markets ($ Billions)($ Billions)($ Billions)($ Billions)

Private Equity Capital RaisedPrivate Equity Capital RaisedPrivate Equity Capital RaisedPrivate Equity Capital Raised

Proven MarketsProven MarketsProven MarketsProven Markets ($ Billions)($ Billions)($ Billions)($ Billions)

0

50

100

150

200

250

300

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06

U.S. Venture U.S. Buyouts EC Buyouts

Source Venture Economics

Buyouts are

more than 2X

prior peak

Venture is

20 to 30%

prior peak




0X

5X

10X

15X

20X

0 10 20 30 40 50 60 70 80 90 100 110 120 130TOTAL CAPITAL INVESTED ($M)

CA

PIT

AL

RE

TU

RN

S (

Mu

ltip

le)

Venture Capitalists are Venture Capitalists are Venture Capitalists are Venture Capitalists are mostly wrong!mostly wrong!mostly wrong!mostly wrong!

A Venture Capital PortfolioA Venture Capital PortfolioA Venture Capital PortfolioA Venture Capital Portfolio

75 PORTFOLIO COMPANIES (1985-1995)

$130 M Invested

$300 M Realized

Top Quartile Returns

75 PORTFOLIO COMPANIES (1985-1995)

$130 M Invested

$300 M Realized

Top Quartile Returns

31“Losers”

21 “B/E

19 “Winners”

4 “Meg-A-Hits”




$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$M

In

ves

ted

per

Qu

art

er

INFOTECH

HEALTHCARE

Venture Capital InvestmentsVenture Capital InvestmentsVenture Capital InvestmentsVenture Capital Investments

in Portfolio Companiesin Portfolio Companiesin Portfolio Companiesin Portfolio Companies---- Two Two Two Two ““““Perfect StormsPerfect StormsPerfect StormsPerfect Storms””””

Venture Capital InvestmentsVenture Capital InvestmentsVenture Capital InvestmentsVenture Capital Investments

in Portfolio Companiesin Portfolio Companiesin Portfolio Companiesin Portfolio Companies---- Two Two Two Two ““““Perfect StormsPerfect StormsPerfect StormsPerfect Storms””””

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey

Internet,

Broadband,

Optical,

“Irrational

Exuberance”

Technology

Meltdown,

Recession,

Enron/Tyco/…,

9/11 to Iraq




FundFundFundFund----Raising HistoryRaising HistoryRaising HistoryRaising HistoryThree Leading VC FirmsThree Leading VC FirmsThree Leading VC FirmsThree Leading VC Firms

FundFundFundFund----Raising HistoryRaising HistoryRaising HistoryRaising HistoryThree Leading VC FirmsThree Leading VC FirmsThree Leading VC FirmsThree Leading VC Firms

0

500

1000

1500

2000

2500

3000

'75 '85 '95 '05

Fu

nd

Siz

e ($

M)

Oak Investments

Austin Ventures

New Enterprise

Average Gross IRR ~25% ~45% ~115%




$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$M

In

ves

ted

per

Qu

art

er

The The The The ““““BubbleBubbleBubbleBubble””””Impact on Vintage Year Impact on Vintage Year Impact on Vintage Year Impact on Vintage Year

PerformancePerformancePerformancePerformance

The The The The ““““BubbleBubbleBubbleBubble””””Impact on Vintage Year Impact on Vintage Year Impact on Vintage Year Impact on Vintage Year

PerformancePerformancePerformancePerformance

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey

NEA 9 NEA 10

Oak IX Oak X

Austin VII Austin VIII

NEA 8NEA 7

Oak VI Oak VII Oak VIII

Austin IV Austin V Austin VI




Rate of Capital CalledRate of Capital CalledRate of Capital CalledRate of Capital CalledGSAGSAGSAGSA’’’’s1999 VC Fundss1999 VC Fundss1999 VC Fundss1999 VC Funds

Rate of Capital CalledRate of Capital CalledRate of Capital CalledRate of Capital CalledGSAGSAGSAGSA’’’’s1999 VC Fundss1999 VC Fundss1999 VC Fundss1999 VC Funds

0%

25%

50%

75%

100%

1998

Q4

1999

Q1

1999

Q2

1999

Q3

1999

Q4

2000

Q1

2000

Q2

2000

Q3

2000

Q4

2001

Q1

2001

Q2

2001

Q3

2001

Q4

2002

Q1

2002

Q2

% o

f C

om

mit

ted

Cap

ital

Fully committed

in 12 to 18 months

Fully committed

in 12 to 18 months




Rate of Capital CalledRate of Capital CalledRate of Capital CalledRate of Capital Called

GSAGSAGSAGSA’’’’ssss 2000 VC Funds2000 VC Funds2000 VC Funds2000 VC Funds

Rate of Capital CalledRate of Capital CalledRate of Capital CalledRate of Capital Called

GSAGSAGSAGSA’’’’ssss 2000 VC Funds2000 VC Funds2000 VC Funds2000 VC Funds

0%

25%

50%

75%

100%

1999 Q4 2000 Q1 2000 Q2 2000 Q3 2000 Q4 2001 Q1 2001 Q2 2001 Q3 2001 Q4 2002 Q1 2002 Q2

% o

f C

om

mit

ted

Cap

ital




FundFundFundFund----Raising HistoryRaising HistoryRaising HistoryRaising History

Three Leading VC FirmsThree Leading VC FirmsThree Leading VC FirmsThree Leading VC Firms

FundFundFundFund----Raising HistoryRaising HistoryRaising HistoryRaising History

Three Leading VC FirmsThree Leading VC FirmsThree Leading VC FirmsThree Leading VC Firms

0

500

1000

1500

2000

2500

3000

'75 '85 '95 '05

Fu

nd

Siz

e ($

M)

Oak Investments

Austin Ventures

New Enterprise

Average Gross IRR ~25% ~45% ~115% Negative!




Current Outlook Current Outlook Current Outlook Current Outlook

U.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalU.S. Venture Capital

Current Outlook Current Outlook Current Outlook Current Outlook

U.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalU.S. Venture Capital

• In spite of some tremendous peaks and valleys, industry in a very real sense is back to basics, e.g. company building

– Some new promising areas of emphasis – consumer, new media,…

– Retrying some areas which did not work so well before – clean tech…

• Overall the outlook is much more positive than people outside the industry realize

– Far less overall competition than in the buyout arena

– Technology sectors recovering steadily – clear “traction in the portfolio’s of most top tier VCs – a growing backlog of companies ready to go public

• The big question is whether IPOs will be back

• There has been a significant shakeout in terms of who is “top tier”

– Both with the number of teams actually doing deals and number of GP’s in the active firms

– Accelerated changing of the guard – generational shifts within established firms, some older firms break up, some new talented teams emerging

• Flood of new (mostly international) LPs - intense LP competition to gain access to “brand name” teams – “Access” is critical




U.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage Years

2001, 2002, 20032001, 2002, 20032001, 2002, 20032001, 2002, 2003

U.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalU.S. Venture CapitalUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage Years

2001, 2002, 20032001, 2002, 20032001, 2002, 20032001, 2002, 2003

Source: GSA Analysis and Venture Economics data

-40%

-30%

-20%

-10%

0%

10%

20%

Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06

Inte

rna

l R

ate

of

Ret

urn

(%

)

2001 2002 2003

???IPO’s




Current Outlook Current Outlook Current Outlook Current Outlook Global Venture CapitalGlobal Venture CapitalGlobal Venture CapitalGlobal Venture Capital

Current Outlook Current Outlook Current Outlook Current Outlook Global Venture CapitalGlobal Venture CapitalGlobal Venture CapitalGlobal Venture Capital

• Technology has always been global, but now the Internet is spreading “entrepreneurship” much faster than most people realize

• Silicon Valley is probably losing share

• International VC markets are reaching “institutional grade” - Israel is clearly proven, China showing promise, and even some hope coming out of Europe (“Skype”)

• The top tier U.S venture firms are moving international

– Initially to support their companies’ international business development efforts

• Corporate partnering, Outsourcing, Offshore manufacturing, international marketing, M&A support…

– Now for more and better quality deal flow

• Europe: TA Associates, DFJ, Accel, Benchmark, Summit… Israel –Sequoia, Benchmark, Greylock… ; China – KP, Greylock, NEA, Mayfield, Venrock, Ignition, Accel… ; India – NEA, DFJ…; Australia: DFJ…

“The world for us has gotten flat for us very quickly”A leading U.S. West Coast Venture Capital Partner




U.S. BuyoutU.S. BuyoutU.S. BuyoutU.S. BuyoutUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage Years

2001, 2002, 20032001, 2002, 20032001, 2002, 20032001, 2002, 2003

U.S. BuyoutU.S. BuyoutU.S. BuyoutU.S. BuyoutUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage YearsUpper Quartile IRRs for Vintage Years

2001, 2002, 20032001, 2002, 20032001, 2002, 20032001, 2002, 2003

Source: GSA Analysis and Venture Economics data

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06

Inte

rna

l R

ate

of

Ret

urn

(%

)

2001 2002 2003




$379 billion was raised for funds equal

to or greater than $1 billion

$90 billion was raised for funds

between $500 million and $1 billion

$83 billion was raised for funds

between $100 and $500 million

In the 3 year period 2004 to 2006:

Sources: TA Associates, Venture Economics and Dun & Bradstreet

Private Equity TrendsPrivate Equity TrendsPrivate Equity TrendsPrivate Equity TrendsCapital Raised Versus Capital Raised Versus Capital Raised Versus Capital Raised Versus

Opportunity Set By SegmentOpportunity Set By SegmentOpportunity Set By SegmentOpportunity Set By Segment

Private Equity TrendsPrivate Equity TrendsPrivate Equity TrendsPrivate Equity TrendsCapital Raised Versus Capital Raised Versus Capital Raised Versus Capital Raised Versus

Opportunity Set By SegmentOpportunity Set By SegmentOpportunity Set By SegmentOpportunity Set By Segment

Upper Middle Market

12,500 Companies

(Revenue: $150 million to $1.0 billion)

Lower Middle Market

137,000 Companies

(Revenue: $10.0 million to $150.0 million

Large Cap

2,600 Companies(Revenue: $1.0 + billion)




““““Brand NameBrand NameBrand NameBrand Name”””” MegaMegaMegaMega----FundsFundsFundsFundsContinue to Raise Larger FundsContinue to Raise Larger FundsContinue to Raise Larger FundsContinue to Raise Larger Funds

““““Brand NameBrand NameBrand NameBrand Name”””” MegaMegaMegaMega----FundsFundsFundsFundsContinue to Raise Larger FundsContinue to Raise Larger FundsContinue to Raise Larger FundsContinue to Raise Larger Funds

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

Fund II (1993) Fund III (1997) Fund IV (2001) Fund V (2006)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Fund I

(1993)

Fund II

(1997)

Fund III

(2000)

Fund IV

(2004)

Fund V

(2006)

Blackstone (12x in 13 years) TPG (20x in 13 years)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

Fund I (2000) Fund II (2002) Fund III (2004) Fund IV (2007)

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Fund I (2000) Fund II (2004) Fund III (2007)

New Mountain (8x in 7 years)Sun (16x in 7 years)




Why Good Buyout Funds Always Why Good Buyout Funds Always Why Good Buyout Funds Always Why Good Buyout Funds Always

Virtually Always Scale!Virtually Always Scale!Virtually Always Scale!Virtually Always Scale!

Why Good Buyout Funds Always Why Good Buyout Funds Always Why Good Buyout Funds Always Why Good Buyout Funds Always

Virtually Always Scale!Virtually Always Scale!Virtually Always Scale!Virtually Always Scale!

Fund

Total Size

$900M

$1,600M

$2,400M

Target

IRR

40%

26%

20%

Target

IRR

40%

26%

20%

Gross1

IRR

34%

21%

14%

GP

Fees

2.0%

1.7%

1.5%

GP Net

Post Tax

$460M

$461M

$460M

GP Net

Post Tax

$460M

$461M

$460M

LP Return

IRR Multiple

27% 3.5X

16% 2.1X

10% 1.7X

LP Return

IRR Multiple

27% 3.5X

16% 2.1X

10% 1.7X

Source: TA Associates

1) Assumes 20% of Portfolio are losers




Profitability of Buyout TransactionsProfitability of Buyout TransactionsProfitability of Buyout TransactionsProfitability of Buyout Transactions

How the Rules Changed over TimeHow the Rules Changed over TimeHow the Rules Changed over TimeHow the Rules Changed over Time

Profitability of Buyout TransactionsProfitability of Buyout TransactionsProfitability of Buyout TransactionsProfitability of Buyout Transactions

How the Rules Changed over TimeHow the Rules Changed over TimeHow the Rules Changed over TimeHow the Rules Changed over Time

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1980s 1990s 2000s

5 Y

ear

IRR

(%

)

2X Earnings

Multiple Expansion

Leverage

Buying Well

Multiple 6-8XLeverage 90%

Multiple 6-8XLeverage 75%

Leverage 65%

81.2%

53.3%

37.0%

Financial

Engineering

Value

Addition




Buyout OverviewBuyout OverviewBuyout OverviewBuyout OverviewThere are concernsThere are concernsThere are concernsThere are concerns

Buyout OverviewBuyout OverviewBuyout OverviewBuyout OverviewThere are concernsThere are concernsThere are concernsThere are concerns

• Flood of capital and “cheap debt” - fund sizes are increasing dramatically -

intense and increasing competition at the “portfolio company level” for

investments

– Joy of being at both ends of a deal

• For the last few years, the “stars were aligned for the “mega” funds, although

historically smaller funds appear to have out performed the larger funds

• Unlike venture, there does appear to have been a fundamental shift in the key

“success” factors, which further favors smaller funds

– From “financial engineering” to “performance post the investment”

– Culturally from investment banking to operational and management (e.g. company building)

• Two investment strategies emerging among experienced LPs:

· Endowments and other smaller investors are focusing almost only on smaller, more

operationally capable and often relatively newer teams in the buyout sector

· Very large investors – a “barbell approach” emphasizing the largest and smallest ends of the

arena and avoiding the intense competition in the middle

• What will happen when the “credit bubble” pops?




AgendaAgendaAgendaAgendaAgendaAgendaAgendaAgenda

• Private equity’s recent history and

current outlook

· Venture capital

· Buyouts

• A Limited Partner’s perspective

· How do you pick the winners

· Two important cycles




Manager Selection is key to Manager Selection is key to Manager Selection is key to Manager Selection is key to

performance in Private Equityperformance in Private Equityperformance in Private Equityperformance in Private Equity

0%

5%

10%

15%

20%

25%

30%

Fixed Income Public Equity Private Equity

Ra

ng

e o

f P

erfo

rma

nce

(%

per

Yea

r)

Source: Grove Street

Measured over 3 Years(but you can get out at any time)

Compounded over5 to 7 years

10 to 20% IRR premium

per year for access to top

quartile funds versus

Industry average

10 to 20% IRR premium

per year for access to top

quartile funds versus

Industry average




Picking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersThe Issues/ObservationsThe Issues/ObservationsThe Issues/ObservationsThe Issues/Observations

Picking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersThe Issues/ObservationsThe Issues/ObservationsThe Issues/ObservationsThe Issues/Observations

• Very fragmented and very “inefficient” market - probably over 5,000 fund

management teams worldwide and no reliable industry data

• Past performance has been a much better predictor of future performance than in

other major asset class – the best teams can pick their investors in even a poor

fund raising environment

• Performance of the team is highly dependant on a few key principals and these

team can be quite unstable over time

• It typically takes 4 to 6 years to know how well a private equity fund will perform

· Evaluation of a team’s recent performance requires the ability to evaluate the potential of a

team’s private investment portfolio

• A number of major endowments have outperformed the industry for more than

25 years - Harvard, M.I.T., Yale, Princeton, Stanford,...

· Playing through the industry cycles, willingness to work with new/emerging teams, willing

to walk from proven teams where there is doubt




Huge differences in LP Huge differences in LP Huge differences in LP Huge differences in LP

performance in 1990sperformance in 1990sperformance in 1990sperformance in 1990s

Huge differences in LP Huge differences in LP Huge differences in LP Huge differences in LP

performance in 1990sperformance in 1990sperformance in 1990sperformance in 1990s

-5% 0% 5% 10% 15% 20%

Endowments

Private Pensions

Insurance Companies

Public Pensions

Advisors

Banks

Source: HBS Lerner, Schoar and Wang [2005]




Performance is driven by Performance is driven by Performance is driven by Performance is driven by

managing the process over managing the process over managing the process over managing the process over many cyclesmany cyclesmany cyclesmany cycles

Performance is driven by Performance is driven by Performance is driven by Performance is driven by

managing the process over managing the process over managing the process over managing the process over many cyclesmany cyclesmany cyclesmany cycles

A unique base of experience and resourcesA unique base of experience and resources

Able to gain

access to

top tier funds

Able to gain

access to

top tier funds

Able to evaluate/

pick the best

fund managers

Able to evaluate/

pick the best

fund managers

Able to add

value to even

the best funds

Able to add

value to even

the best funds

Outstanding Returns

Reputation & Personal Relationships




Funds Reviewed Funds Reviewed Funds Reviewed Funds Reviewed Funds Reviewed Funds Reviewed Funds Reviewed Funds Reviewed

0

50

100

150

200

250

300

350

400

450

500

550

1999 2000 2001 2002 2003 2004 2005 2006

Nu

mb

er o

f F

un

ds

Buyout and Other Venture

Year

1999

20002001

2002

2003

2004

20052006

Reviewed

399

472511

389

392

400

413393

Meetings

205

19990

115

94

178

180150




GSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation ProcessGSA Evaluation Process

Soft Circle

Subject too..

Typically 2 to 3 weeks

Can be 2 to 3 days

Typically 3 to 4 weeks

Can be 1 week

Don’t know

Issues are..

Proactive(Site visits, industry

contacts, etc..)

Proactive(Site visits, industry

contacts, etc..)

Reactive(Public relations,

placement agents)

Reactive(Public relations,

placement agents)

Screening• Placement

materials

• Independent

reference

checks

Screening• Placement

materials

• Independent

reference

checks

First MeetingTriage/

Feedback/

Timing

First MeetingTriage/

Feedback/

Timing

Due Diligence• Internal & external

reference checks

•Portfolio performance

•On-site visits

•Negotiation of key

terms

Due Diligence• Internal & external

reference checks

•Portfolio performance

•On-site visits

•Negotiation of key

terms

“Hard Circle”

“Hard Circle”

Legal

Review/

Close

Legal

Review/

Close

Monitoring &

Value-addition•Advisory boards -

primarily new/emerging

•Staffing - at fund &

portfolio company

•Deal flow/

co-investment

•Other support

Monitoring &

Value-addition•Advisory boards -

primarily new/emerging

•Staffing - at fund &

portfolio company

•Deal flow/

co-investment

•Other support

Quick no

with helpful

feedback

In style and substance similar to that of

a first class private equity firm

•Over 85% of GSA’s relationships initiated proactively

•Most due diligence via GSA’s proprietary contacts

•Senior experience brought into the process early

•Usually a quick answer with clear helpful feedback

In style and substance similar to that of

a first class private equity firm

•Over 85% of GSA’s relationships initiated proactively

•Most due diligence via GSA’s proprietary contacts

•Senior experience brought into the process early

•Usually a quick answer with clear helpful feedback




“If Grove Street brings me one

deal over the life of a fund or helps

me find one key person for my own

staff or a portfolio company they

will have added more value than

the rest of my institutional

investors put together.”

The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!The Ability to Add Value!




Tale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two Funds

• “All our companies are run by seasoned CEOs with lots of gray hair”

• “Our investment professionals have extensive senior level operating experience and we know how to get into our companies and add real value”

• “We stand by our companies – it would be very embarrassing for us to give up and have the company still make it”

• “We have a single team, single office, meet every Monday and focus all our efforts on a single fund”

• “Many of the truly great companies have been founded by kids under 30”

• “We have caught virtually every wave early, our professionals know how to think outside the box and place the right bets”

• “There is a perfect, but inverse correlation between how much time we spend with a company after we invest and how well we do with it”

• “We have a synergistic mix of affiliates, public and private vehicles, focused and broad based funds and multiple offices”




Tale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two FundsTale of two Funds

• “All our companies are run by seasoned CEOs with lots of gray hair”

• “Our investment professionals have extensive senior level operating experience and we know how to get into our companies and add real value”

• “We stand by our companies – it would be very embarrassing for us to give up and have the company still make it”

• “We have a single team, single office, meet every Monday and focus all our efforts on a single fund”

• Top quartile performance since 1982

• “Many of the truly great companies have been founded by kids under 30”

• “We have caught virtually every wave early, our professionals know how to think outside the box and place the right bets”

• “There is a perfect, but inverse correlation between how much time we spend with a company after we invest and how well we do with it”

• “We have a synergistic mix of affiliates, public and private vehicles, focused and broad based funds and multiple offices”

• Better than top quartile performance since 1989




The Role of Emerging Managers in a The Role of Emerging Managers in a The Role of Emerging Managers in a The Role of Emerging Managers in a

Private Equity PortfolioPrivate Equity PortfolioPrivate Equity PortfolioPrivate Equity Portfolio

The Role of Emerging Managers in a The Role of Emerging Managers in a The Role of Emerging Managers in a The Role of Emerging Managers in a

Private Equity PortfolioPrivate Equity PortfolioPrivate Equity PortfolioPrivate Equity PortfolioCurrent Fund

1960’s 1970’s 1980’s 1990’s 2000’s

$0.2B

$2.0B

$0.4B

$3.5B

$5.0B

$4.0B

$0.6B

$0.8B

$1.2B

$3.5B

$0.8B

$0.5B

$0.8B

$1.0B

Spectrum

Parthenon

Grove Street

Advent International

Burr, Egan & DeLeage

Summit Partners

TA Associates

Great Hill

MC Partners

TA Realty

Gemini

Argo

Alta Comm.

Alta Bio Pharm.

TA & Company

Polaris

~$25B

TA & Company’s Family TreeTA & Company’s Family Tree




The Life Cycle The Life Cycle The Life Cycle The Life Cycle of of of of Private Equity Fund ManagersPrivate Equity Fund ManagersPrivate Equity Fund ManagersPrivate Equity Fund Managers

The Life Cycle The Life Cycle The Life Cycle The Life Cycle of of of of Private Equity Fund ManagersPrivate Equity Fund ManagersPrivate Equity Fund ManagersPrivate Equity Fund Managers

New

Emerging

Established

Proven Top Tier

Stability?

Time

Exp

ecte

d P

erfo

rman

ce

Fund I Fund II Fund ...




0

25

50

75

100

GSA Fund ManagersGSA Fund ManagersGSA Fund ManagersGSA Fund Managers’’’’Performance by Fund NumberPerformance by Fund NumberPerformance by Fund NumberPerformance by Fund Number

1990 to 19991990 to 19991990 to 19991990 to 1999

GSA Fund ManagersGSA Fund ManagersGSA Fund ManagersGSA Fund Managers’’’’Performance by Fund NumberPerformance by Fund NumberPerformance by Fund NumberPerformance by Fund Number

1990 to 19991990 to 19991990 to 19991990 to 1999

Av

era

ge

Per

cen

tile

Ra

nk

Fund Number1st 5th4th3rd2nd 8th6th 7th

Source: Venture Capital Benchmarks.




A Two Part StrategyA Two Part StrategyA Two Part StrategyA Two Part StrategyRepresentative Fund ManagersRepresentative Fund ManagersRepresentative Fund ManagersRepresentative Fund Managers

A Two Part StrategyA Two Part StrategyA Two Part StrategyA Two Part StrategyRepresentative Fund ManagersRepresentative Fund ManagersRepresentative Fund ManagersRepresentative Fund Managers

Proven, Top Tier FirmsABRY

Austin VenturesBattery VenturesBerkshire Capital

Draper Fisher JurvetsonGenstarGemini

Highland CapitalJVPKPS

Menlo VenturesNew Enterprise Associates

North Bridge Venture PartnersPolaris Ventures

PitangoRedpoint

RhoSierra Ventures

Summit PartnersTA Associates

TridentU.S. Venture Partners

Wynnchurch

The Next Generation!Aberdare Ventures*

Altor (Sweden)*Audax Group*

CarmelClarus*

Doll CapitalGeneral Catalyst*Gordon Brothers*

Granite Global Ventures*IDG Ventures*

IgnitionIndex Ventures (Switz.)

Lake Capital*Lime Rock

New Mountain*Northern Light (China)*

Bowmark (UK)RhoneSAIF

Spark*Sorenson*Tallwood*

Vector Capital

* First time fund; Blue indicates GSA played “sponsorship role”




Picking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersPicking the WinnersPicking the Winners

• Fund investing is essentially hiring individuals for a very important job, knowing you

can not fire them once hired

· It is much more based upon experience and investment judgment than on analysis

• The markets are fundamentally cyclical - diversification is critical - by geography, by

time, by types of investment, and by style of manager

· There is no one right strategy, you need to play through the cycles with the best teams

• With the best teams, the GPs will always have the ability to set their terms and/or pick

their investors

· Deep personal relationships and mutual respect will always be important, we will always have to

“sell”, our fund managers will always be our most important sales force

• A “GP-level” operating perspective is critical

· To build relationships, to add value, to evaluate unrealized portfolio companies, fundamentally to

choose well

• Fund investing is also long term process, you have to continue to monitor the industry

and your teams, knowing when to add a new team and when to drop an existing

relationship

some perspectives on private equity from my last 100...

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