Transcript Venture Partners Management 3

Venture Partners AS
Leveraging the Nordic Internet Edge
Presentation
BI, MBA-class 18 February, 2000
Presentation highlights



The Nordic and European Internet Space is an
attractive investment opportunity due to the
advanced stage of the Nordic countries and a
strong European growth perspective.
Venture Partners Management has built a strong
franchise for investing in Internet and related
technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can
be mitigated in several ways
Venture
Partners Management
Presentation highlights



The Nordic and European Internet Space is an
attractive investment opportunity due to the
advanced stage of the Nordic countries and a
strong European growth perspective.
Venture Partners Management has built a strong
franchise for investing in Internet and related
technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can
be mitigated in several ways
Venture
Partners Management
Investment Focus
Information
Tech.
Telecom
Internet
Media
VPM Focus
Venture
Partners Management
Technology is becoming an important
part of the total economy




Today the technology sector within the US economy accounts for
roughly 15% of the total economy.
At the present growth rate, technology will account for over 51% of the
economy by 2008.
Year after year, technology companies grow at about 15% while the
rest of the economy plods along at 2-3% real growth.
Out of the total technology growth, Internet-related businesses are
growing at about 80 % per year
Venture
Partners Management
-5%
Source: BEA
III 1999
IV 1998
I 1998
II 1997
III 1996
IV 1995
I 1995
II 1994
III 1993
IV 1992
30%
I 1992
II 1991
III 1990
III 1989
IV 1988
I 1988
Year-over-Year Growth
Technology is the Fastest Growing
Component of U.S. GDP
IT Growth
GDP Growth
25%
20%
15%
10%
5%
0%
Venture
Partners Management
The US Internet economy
Internet
Revenues
Internet Infrastructure
Internet
Jobs
$115.0 Billion
372,462
$56.3 Billion
230,629
$58.2 Billion
252,473
$101.9 Billion
481,990
$301.4 Billion
1,203,799
Provides products that create
or enable an IP network infrastructure
Internet Applications
Creates applications that enable
business over an IP network
Internet Intermediary
Facilitates the meeting of
buyers and sellers online
Internet Commerce
Sells products over the Internet
Internet Economy Totals
It took the automotive and energy industry 100 years to match similar figures
Source: Study sponsored by Cisco Systems and conducted by the University of Texas (1999 estimate)
Venture
Partners Management
The Internet - is affecting all of us
In five years’ time, all companies will be Internet
companies — or they won’t be companies.
Andy Grove, Chairman of Intel, said in 1999.
Venture
Partners Management
US Internet companies attract
strong values
*Data as of 7/30/99
Company
1 Microsoft
2 America Online
3 Charles Schwab
4 Yahoo!
5 Amazon.com
6 Excite
7 EBAY
8 Priceline
9 CMG Info.n Svcs
10 E*trade Group
11 Juniper Networks
12 Real Networks
13 Exodus
14 Inktomi
15 eToys
Ticker
MSFT
AOL
SCH
YHOO
AMZN
XCIT
EBAY
PCLN
CMGI
EGRP
JNPR
RNWK
EXDS
INKT
ETYS
Description
Software/Internet
Portal/ISP
E-broker/Finance Portal
Portal
E-commerce portal
Portal
E-trade
E-trade - travel
Internet holding company
E-broker/Finance Portal
ISP
Internet software
Internet software
Internet software
E-commerce
% change Mkt Cap*
since IPO
($MM)
29878 %
444 717
27331 %
107 293
6745 %
37 444
6223 %
34 939
3285 %
16 409
795 %
15 565
1604 %
12 806
403 %
11 457
14741 %
8 912
1119 %
7 471
326 %
7 085
1154 %
5 496
1582 %
5 191
1058 %
5 090
114 %
3 458
Venture
Partners Management
US Internet companies vs.
Norwegian Blue Chips
*Data as of 7/30/99
Company
1 Microsoft
2 America Online
3 Charles Schwab
4 Yahoo!
5 Amazon.com
6 Excite
7 EBAY
8 Priceline
Norsk Hydro
9 CMG Info.n Svcs
RCCL
10 E*trade Group
11 Juniper Networks
12 Real Networks
13 Exodus
14 Inktomi
Nycomed Amersham
15 eToys
Orkla
Ticker
MSFT
AOL
SCH
YHOO
AMZN
XCIT
EBAY
PCLN
CMGI
EGRP
JNPR
RNWK
EXDS
INKT
ETYS
Mkt Cap*
($MM)
444 717
107 293
37 444
34 939
16 409
15 565
12 806
11 457
11 273
8 912
7 914
7 471
7 085
5 496
5 191
5 090
3 930
3 458
2 935
Venture
Partners Management
11 of the 15 most valuable US Internet
stocks are less than 5 years old
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Company
Microsoft
America Online
Charles Schwab
Yahoo!
Amazon.com
Excite
EBAY
Priceline
CMG Info.n Svcs
E*trade Group
Juniper Networks
Real Networks
Exodus
Inktomi
eToys
Mkt Cap*
($MM) Foundation
444 717
1975
107 293
1985
37 444
1974
34 939
1994
16 409
1995
15 565
1994
12 806
1995
11 457
1996
8 912
1986
7 471
1995
7 085
1994
5 496
1995
5 191
1994
5 090
1996
3 458
1996
* Share prices as of 7/30/99
Venture
Partners Management
Active Venture capital funding has
facilitated rapid growth
Venture
Partners Management
Venture capital - the chief source of
funding for Internet businesses
Investments in Internet Related companies
6
Average Deal size of Internet Related
Investments
9
8
5
7
6
4
5
3
USDbillion
2
USD millions
4
3
2
1
1
0
0
1. Half 98
1. Half 99
1.half 97
1. Half 98 1. Half 99
Source: PriceWaterhouseCoopers, September 1999
Venture
Partners Management
Where Have We Been?
June 1995 - December 1999

Netscape Navigator shipped - 6/95

http://www:
Exploration
Experimentation

Business Model:
Consumer traffic driven
Advertising CPM’s
Venture
Partners Management
Where Are We Now?
1999/2000

http://www.
Dis-intermediation
Business re-engineering
New businesses

Business Models:
% of transaction
service usage
auction-based everything
“free”
Venture
Partners Management
Where Are We Going?
2000- 2002 Estimate

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Everything is “auctionable”
Consolidation of:
Customers as pooled buying power
B2B procurement verticals

Infrastructure Investments
mobile, wireless
broadband cable
DSL

Enablers
new ASP software services
Venture
Partners Management
Segments that will drive
Internet growth
Revenue
VPM III Focus
Source: Morgan Stanley Technology Research
1998
1999
2000
2001
2002
Time
European Average – 3 years lag behind US
Venture
Partners Management
European Internet Growth
The European market will triple in 5 years
120,0
109,5
100,3
100,0
91,0
75,8
80,0
M Users
Internet growth highest outside US
63,8
60,0
48,0
40,0
33,5
22,4
20,0
0,0
1997
1998
1999E 2000E 2001E 2002E 2003E 2004E
Source : Morgan Stanley Dean Witter, June 99
Venture
Partners Management
Nordic Countries are ahead
Million
Finland
Norway
Sweden
Denmark
Switzerland
UK
Netherlands
Europe
Germany
Belgium
Ireland
Austria
Spain
France
Italy
Portugal
Greece
USA
Users Population
1,57
5,10
1,34
4,40
2,58
8,80
0,95
5,30
1,00
7,10
8,10
58,10
1,96
15,30
33,60
384,20
7,14
82,10
0,79
10,20
0,26
3,70
0,54
8,10
1,98
39,30
2,79
58,60
2,14
57,60
0,26
10,00
0,24
10,50
64
270,3
Percent
30,8
30,5
29,3
18,0
14,1
13,9
12,8
8,8
8,7
7,7
7,1
6,7
5,0
4,8
3,7
2,6
2,3
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The Nordic countries
are ahead of Europe
Nordic user rates in
the rest of W Europe
will result in 130
million users
24 %
1. Based on the total population, including children
Source: Com puter Industry Alm anac. 1998 figures
Source: Population Estim ates Program , Population Division,
U.S. Census Bureau
Source: Morgan Stanley Dean Witter
Venture
Partners Management
Internet Access on Any Device - A special
Nordic Stronghold
MP3 Players
Internet
Enabled
Wireless Phones
1.3 million units shipped - 1999
Source: Cahners, IDC
Personal Digital Assistants
Worldwide Shipments (millions)
1998E
1999E
2000E
7.4
10.7
14.8
Source: IDC
Personal Computers
Worldwide Installed Base (millions)
1998E
1999E
2000E
295
340
390
Source: IDC, TWP estimates
22
Venture
Partners Management
US experience vs. European
opportunities
Europe is catching up
 Europe is 2 - 3 years behind the US, but the gap is narrowing
 Although the Internet is a global medium, localisation is essential
 Heavy marketing spend predicted as Internet brands go mass market
 Barriers to entry are low, and there are abundant start up opportunities
 The European Venture Capital market is beefing up
Nordic start ups are well positioned
 The Nordic markets are ahead in terms of Internet, PC and mobile penetration
 Scandinavia is functioning as a test market
 Viable Nordic business concepts are being exported to Europe & the US
 There is plenty of activity among the Nordic entrepreneurs
The major European Internet brands will be established over
the next 2 -3 years.
Nordic players are in a strong position to take a large share
Venture
Partners Management
Presentation highlights



The Nordic and European Internet Space is an
attractive investment opportunity due to the
advanced stage of the Nordic countries and a
strong European growth perspective.
Venture Partners Management has built a
strong franchise for investing in Internet and
related technologies and is well positioned for
a third fund
Venture Capital is by definition risky, but risks can
be mitigated in several ways
Venture
Partners Management
History
March 1994

Venture Partners founded. First start up (HUGIN) initiated
and launched 1995
Aug
1996

Internet is seen as a market with significant upside. Work
is initiated to establish an Internet Venture Fund
Feb
1997

VPM I established with a funding of NOK 51 Mill.
Aug
1998

VPM I is fully invested. VPM II is raised with a funding
NOK 71 million
Sep
1999

VPM LTS raises NOK 40 million from VPM I investors to
follow up investment (pre IPO) in Stepstone.

VPM II is fully invested. VPM III is established with a
funding of EURO 70 million.
Dec
1999
Venture
Partners Management
VP principles
Focus
Focus on industries we understand, in people we believe
in and on entities that have a high international potential
scaleable concepts and clear competitive advantages.
Hands on
ownership
Exercise active ownership through significant shareholding in investment targets and deep involvement in
management in critical phases.
Value
Prioritise activities related to financial and strategic
creation
partnerships as well as exit opportunities with an objective
perspective of creating the highest possible return on the investment.
Pure VC
approach
Follow Silicon Valley Venture Capital model:
Board representation, involvement in fund raising and
recruiting, pursuit of M& A activities and seeking VC
investors for later financing rounds.
Venture
Partners Management
The VPM III “Cluster”
Venture Partners
Advisory Board
A staff with both Internet and start up
experience and a combination of skills
necessary to run an outstanding
Venture Capital entity
Key experts in the field
of technology and Internet
that advises on investments
and follow up
International Partners
Network of Venture and
technology partners in
Europen and the US that
Venture Partners works with
on different occasions.
Venture Advisers
Consultants with 20 years
combined experience in
the software / media
industry
Entrepreneur Network
Entrepreneurs in - and outside
of portfolio companies that
make time available for VPM
and related companies
Venture
Partners Management
Hands on approach
Some examples
Bilguiden.no
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Jobshop.no
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Reisefeber.com
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Initiated merger between Bilguiden and Interbil.
Changed management and structure
Initiated and negotiated merger with Bilweb in Sweden
Active in preparing on-going Fund Raising
Initiated acquisition of Danish and Swedish players
Initiated strategy work leading to a Pan European approach
Brought in Geo Capital, Investor AB and Index Ventures in
second round financing
Negotiated terms
Initiated the investment pro actively through dialogue with SOL
Got new management structure in place
Negotiated deal with Lastminute.com
Negotiates potential acquisitions
Venture
Partners Management
Financial performance
Venture Partners
Multimedia I
(Invested
0397 - 0798)
Venture PartnersMultimedia II
(Invested 0898 - 0999)
537
IRR 155%
IRR 66%
117
71
51
Committed
TotaL Value
Commited
Total Value
Note: IRR after carried interest 136% (before tax)
Unrealized value estimates at latest transaction levels
Value estimates are not discounted for junior securities held in venture backed rounds
Venture
Partners Management
Track Record
Percent return
LAST MINUTE
STEPSTONE
3000 - 5000
BILGUIDEN
FILEFLOW
SEVEN MOUNTAINS
MASS MARKET
GURU SOFTWARE
PORT AUTHORITY
50 -300
N.A.
Under Performers
MIKOS
SALGSNETT
SKIINFO
SU-SOFT
HUGIN
REISEFEBER
On the Threshold
Funded for growth
Gorillas
Fund 1
Fund 2
Venture
Partners Management
The Stepstone Story
Apr.99-Oct. 99
Oct. 98 - March 99
June-Aug. 98
Dec 97.-June 98
2. Round of
financing
June-Sept 97
(USD 2 mill)
Acquisitions Aggressive TV
and internet
in Sweden
May 97
advertising
and Denthroughout
mark.
Aggressive
Rapid organic Scandinavia,
March 97
building of
growth and
telesales
roll-out of
VPM I acquires 50
organisation in unified
percent of Jobshop
Norway
product
for
Prising: NOK 8
mill. (USD 1 mill)
German
acquisition
closed,
European
strategy
defined
VCs invited
into company,
USD 17 mill
closed with
selected VCs
New management
team, additional
USD 15 mill.
invested, Limited
Partners in VPM I
invest USD 5
million through
VPM LTS., Morgan
Stanley signed up as
advisor
Venture
Partners Management
Presentation highlights



The Nordic and European Internet Space is an
attractive investment opportunity due to the
advanced stage of the Nordic countries and a
strong European growth perspective.
Venture Partners Management has built a strong
franchise for investing in Internet and related
technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks
can be mitigated in several ways
Venture
Partners Management
Risk Mitigation - investor perspective
Typical Asset allocation for a professional investor
14 %
6%
10 %
40 %
30 %
Cash
Bonds
Stock listed shares
Private equity
Venture Capital
Venture
Partners Management
Risk Mitigation alternatives from the
venture capital perspective
Diversification related to selection of investment targets
 Sectors
Internet => IT, Telecom
 Geography/Region Norway => Nordic
 Stage
Seed => Later Stage
DANGER: ILLUSIVE RISK REDUCTIONS
Venture
Partners Management
Later stage not necessarily less risky
than seed
Seed
Early
stage
Expansion
IPO
Listed
• In theory risk is reduced the longer the company has lived
•In a booming market with high valuations, it might
be more risky to invest in a Pre-IPO candidate or in a
listed company than in selection of seed targets.
Venture
Partners Management
How do we then invest ?
Invest in superior
management teams
The quality of the management is by far the most
important element related to risk assessment
Invest in companies
with a huge market
potential
As long as the potential is large enough, and the
business model is scalable, it is sufficient to have one
“winner” to make a handsome return
Establish
milestones
Establish milestones related to technology, customers,
partners or sales and if possible distribute equity in
tranches
Make use of
advanced equity
instruments
Use of preferred shares, convertible loans and other
equity instruments may give the investor protection
and a reduced down side in certain down side
scenarios
Team up with
partners
The chances of success can be significantly increased
by putting together a group of investors contributing
with strategic, financial and networking skills
Venture
Partners Management
Then what do we do when we
have invested ?
Speed is the name
of the game
Nothing puts the strategy in jeopardy as much as the
lack of speed. Use external resources to avoid
timelags in recruiting, M&A activities and so on.
Act immediately on
underperformance
Problems will grow if unattended. If budgets are not
reached, they will not be fulfilled without prior action.
Put on high calibre
management
resources
Furnish the company with competent managers. As a
company grows internationally, new skills and
experience has to be added.
Stay hands on and
set clear targets as
investor
Stay hands on and actively follow up the portfolio
companies. Define a clear and ambitious strategy. Stay
in close personal contact with top management
Venture
Partners Management
My message
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




There are huge opportunities within Internet and technology
Building a new business is great fun
It is a great pity that you bright heads are planning to work for
established dull companies
Do you want to miss the train ?
We need you in our start ups’
Join us !!!
Venture
Partners Management