Transcript Key Trends Shaping the Rapid Growth of the Venture Capital

Ohio Venture Association
The Quiet Recovery –
the Regional Core Competencies of Our
Expanding Venture Community
September 12, 2008
Mark G. Heesen
President
Venture Capital –
Barely a macroeconomics
rounding error in the world of
US finance….
US Venture Capital Investment in
Perspective





US GDP $12.5 trillion annually
Hedge fund intake $1.5 trillion over last 3 years
estimated
Buyout equity intake $168 billion in 2007
Mutual fund intake $92 billion in 2007
Venture capital intake $37 billion in 2007
 Venture
capital fundraising & investment Is 0.3% of
total GDP
Source: BLS website, Investment Company Institute, Thomson Reuters, NVCA
Global Insight Study

In 2006, venture backed companies:
 Provided
10.4 million US jobs
 Had sales of $2.3 trillion

Represents 17.6% of GDP
 Still dominated venture-created sectors
 56% of biotech revenue
 78% of computer and peripherals revenue
 94% of computer and peripherals jobs
 88% of software sector jobs
 Outgrew
the economy 2003-2006 in every
sector
Source: Venture Impact 2006 by Global Insight
Venture Capital Investment
is Productive ...



For VC every dollar invested in 1970-2001, there was
$7.90 in US revenue during 2006
For every $28,463 of venture capital invested in 19702001, there was one job in the year 2006
Note these ratios are based on investment through 2001 ($296B)
because investment after that time has likely had little effect on 2006
jobs and revenues. If investment through 2006 ($421B) is used, the
ratios would be $5.55 and $40,364 respectively
Source: Venture Impact 2006 by Global Insight
Fundraising & Resources
The Number of US VC Firms Has
Peaked .. Thankfully
At Year
End
# Venture
Firms
Capital Under
Mgt
1970
1980
1990
2000
2006
2007
28
92
393
883
855
741
$1B
$4B
$28B
$225B
$280B
$258B
Source: 2008 NVCA Yearbook, prepared by Thomson Reuters, figure 1.04
VC Fundraising Was Strong Thru 2000 Recent Increase Way Below Bubble Levels
120.0
100.0
80.0
60.0
40.0
20.0
0.0
$B Gross
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
7.8
10.1
11.6
18.1
30.6
58.2 106.6 38.0
3.8
10.6
19.1
28.6
31.8
Does not include Corporate Venture groups.
Source: Thomson Reuters/NVCA
36.8
16.2
Investment Marches On Rumors that the Venture Industry has stopped
investing are greatly exaggerated
VC Investment Peaked in 2000;
Recently 20-23% of Peak;
Recent Steady Increases
$120,000
$ Million Invested
$100,000
$80,000
$60,000
$40,000
$0
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
1H08
$20,000
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Most Recent Quarters Have Been
Consistent – What is the “Right” Level?
Some Recent Growth
$10
$5
$0
Total VC $B
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
5.1
6.2
4.8
5.7
5.1
6.3
5.9
5.8
6.4
7.0
6.8
6.3
7.5
7.4
7.8
8.1
7.4
7.4
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
In 1H 2008, Life Sciences drew
28% of Funding but Medical
Devices comprises an evergrowing proportion
HC
Services
1%
Med
Devices
12%
Other 12
sectors
72%
Biotech
15%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
3000
Clean Technology grows significantly:
In First Half 2008, $1.8B in 125 Deals
250
2500
200
2000
150
1500
100
1000
50
500
0
$M
# Deals
1998
1999
2000
2001
2002
2003
2004
2005
107
203
563
365
391
260
437
524
36
37
45
59
65
56
75
86
2006
2007
1H08
1,418 2,587 1,754
135
228
125
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
0
Average Clean Tech Deal
Size is Increasing
15
10
5
0
$M/Deal
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007 1H08
3.0
5.5
12.5
6.2
6.0
4.6
5.8
6.1
10.5
11.3
14.0
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Number of First Time Fundings
(New Projects) is At Post-Bubble
High!
3,500
3,000
2,500
2,000
1,500
1,000
500
-
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
First Fundings 1,142 1,287 1,409 2,439 3,369 1,213
837
752
920
1,015 1,180 1,289
617
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
The Buckeye State
Stats and Sectors …
Ohio Tracks Below National Trends
(National: 1/3 of peak, now at 1998 levels)
1200
90
80
1000
70
800
60
50
600
40
400
30
20
200
10
0
$M Invested
# Deals
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1H08
309
511
977
234
268
179
68
134
63
182
130
63
52
78
43
49
26
33
36
33
49
24
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
0
Ohio Sector Splits
Medical Devices Lead the Way!
(Most recent 8 quarters)
Ohio
US
SW
18%
Bio
17%
Med Dev
26%
Other
8%
Med
Dev
13%
Other
27%
Ind/Ene
rg
11%
Semi
7%
Teleco
m
7%
Elec
/Instr
3%
SW
22%
Bio
13%
Telecom
13%
Ind/Ener
g
15%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
The Exit Scene the importance of
acquisitions has become
clear over the past several
years
30
300
25
250
20
200
15
150
10
100
5
50
0
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1H08
Source: Thomson Reuters/National Venture Capital Association
Number of IPOs
Offer $B
IPO Levels Were Good in 2004
and Okay in 2007; Awful Now
The Most IPOs Were in 1996 &
2000; Then 2004 & 2007 Showed
Promise; 2008 is Awful
300
200
100
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 2Q08
# IPOs 260
138
78
270
264
41
22
29
93
56
57
86
5
Source: Thomson Reuters/National Venture Capital Association
0
2007 Set A Median Valuation Record;
The Handful of 2008 IPOs Show Some
Strength
400
300
200
100
0
Median Val ($M)
1998
1999
2000
2001
2002
2003
2004
2005
2006
182
342
247
322
223
228
255
203
255
2007 1H08
346
Source: Thomson Reuters/National Venture Capital Association
237
IPOs YTD 2008: Bleak!!!



Only 5 IPOs in Q1 and 0 in Q2!
Last zero IPO quarter was in 1978 … 30 years
ago!
IPO in context:
 Approached
90/quarter in 1999
 25/quarter is typical
 35/quarter suggested by historical levels

1,000 new port cos/year x 14% historical IPO rate =
140/year
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
What’s in the IPO Pipeline?
IPOs During Period and Registration Counts at Period
End
100
80
60
40
20
0
2003
2004
2005
2006
2007
1H08
IPOs Done
29
93
56
57
86
5
In Reg on last day
31
57
16
36
60
42
Source: Thomson Reuters/National Venture Capital Association
IPOs Don’t Happen Overnight – and
Sometimes Don’t Seem to Happen
Year
2004
2005
2006
2007
1H08
# IPOs IPOs $B
93
11.01
56
4.46
57
5.12
86
10.33
5
0.28
Median
Val $M
254.90
203.35
255.26
346.01
236.99
Median
Age
Yrs
6.75
6.13
8.20
8.65
8.56
Source: Thomson Reuters/National Venture Capital Association
VB Acquisition Counts had been
Steady; Low in 2008
400
300
200
100
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
# VB Acq 164
209
239
317
353
318
290
339
350
368
355
120
Source: Thomson Reuters/National Venture Capital Association
M&A Proceeds Vary Greatly As the
Mix between “Good” Exits and
Fire Sales Shift; Now low
$80
$60
$40
$20
$0
Acq $B
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
7
9
38
68
17
8
8
15
30
19
28
Source: Thomson Reuters/National Venture Capital Association
6
Venture Exit Counts- IPOs and M&A
by Year - 2008 is Dismal!
700
Number of Issues
600
500
M&A
IPO
400
300
200
100
0
91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07
1H
08
M&A 17 76 74 100 97 116 164 209 240 317 353 318 290 350 350 368 355 120
IPO 156 181 220 166 202 270 136 77 260 264 41 24 29 93 56 57 86 5
YearThomson Reuters/National Venture Capital Association
Source:
Public Policy
Big Wins and
Bigger Challenges
No one has repealed the
business cycle or the nature
of failure …
Key US VC building blocks ...

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
For First Fundings From 1991 to 2000,
Approximately 33% Were Acquired and
14% Went Public
[11,686 Companies Total]
Acquired
33%
Public or In Reg
14%
Still Private
35%
Known Failed
18%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Mark G. Heesen
President