North Carolina Council for Entrepreneurial Development The State of Venture Capital February 1, 2007...

North Carolina North Carolina

Council for Entrepreneurial DevelopmentCouncil for Entrepreneurial Development

The State of Venture CapitalThe State of Venture Capital

February 1, 2007February 1, 2007

Mark G. HeesenMark G. Heesen

PresidentPresident

Fundraising & ResourcesFundraising & Resources

Typically Buyout Funds Outraise Typically Buyout Funds Outraise Venture 2x-3xVenture 2x-3x

Year

VC Raised $B BO/Mezz Raised $B

1998 30 60

2000 105 77

2003 11 30

2004 17 52

2006 29 102

Source: Thomson Financial / National Venture Capital Association – News release 1/16/2007 and prior releases

At Year End

# Venture Firms

Capital Under Mgt

1970 28 $1B 1980 89 $4B 1990 398 $31B

2000 887 $223B 2001 949 $252B 2005 866 $259B

The Number of US VC Firms Has The Number of US VC Firms Has Peaked .. ThankfullyPeaked .. Thankfully

Source: 2006 NVCA Yearbook, prepared by Thomson Financial, page 18

VC Fundraising Was Strong Thru 2000 - VC Fundraising Was Strong Thru 2000 - Recent Uptick Way Below Bubble Levels Recent Uptick Way Below Bubble Levels

0.0

20.0

40.0

60.0

80.0

100.0

120.0

$B Gross 7.8 10.1 11.6 18.1 30.6 58.2 106.6 38.0 3.8 10.7 18.6 27.0 28.6

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: VentureXpert™ Database by VE & NVCADoes not include Corporate Venture groups.

Largest 24% of Funds Attract Largest 24% of Funds Attract 74% of Capital74% of Capital

2005 Funds by Size:2005 Funds by Size:$0-$25M$0-$25M 5757$25.1M-50M 14$25.1M-50M 14$50.1M-$250M 42$50.1M-$250M 42$250.1M+ 43$250.1M+ 43

0%

20%

40%

60%

80%

Pct of Money Going to Funds $250M & Up

1996 2000 2005Source: VentureXpert™ Database by VE & NVCA

Sources of Venture FundsSources of Venture Funds

Pension Funds42%

Endow & Found21%

Individ & Fam10%

Corps (as LPs)

2%

Financial & Ins25%

Source: 2003 data from 2004 NVCA Yearbook, prepared by Thomson Financial, page 22

Investment Marches On -Investment Marches On -Rumors that the Venture Industry Rumors that the Venture Industry has stopped investing are greatly has stopped investing are greatly

exaggeratedexaggerated

VC Investment Peaked in 2000; VC Investment Peaked in 2000; Recently 20-23% of Peak; 2006 Recently 20-23% of Peak; 2006

HigherHigher

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illi

on

In

ve

ste

d

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

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial

$0

$5

$10

Total VC $B 6.7 6.0 4.5 4.5 4.3 5.0 4.8 5.5 5.1 6.2 4.8 5.7 5.0 6.3 5.6 5.7 6.3 6.9 6.6 5.7

1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06

Most Recent Quarters Have Been Most Recent Quarters Have Been Consistent – What is the “Right” Level?Consistent – What is the “Right” Level?

Is the 2006 upturn a shift?Is the 2006 upturn a shift?


1998 to 2006 – Similar Inv Level But:1998 to 2006 – Similar Inv Level But:IT share from 53% to 50%;IT share from 53% to 50%;

Life Sciences from 17% to 28%Life Sciences from 17% to 28%

0% 20% 40% 60% 80% 100%

2006

1998

IT Life Sciences Consumer, Other


Corporate VC Peaked in 2000 at >1/4 Corporate VC Peaked in 2000 at >1/4 of deals and 1/6 of the moneyof deals and 1/6 of the money

0%

5%

10%

15%

20%

25%

30%

% of Deals 9% 11% 15% 24% 27% 22% 19% 16% 19% 19% 19%

% of Dollars 6% 7% 8% 15% 16% 12% 9% 7% 7% 7% 8%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


North Carolina UpdateNorth Carolina Update

State and Regional Data SourcesState and Regional Data Sources

www.pwcmoneytree.comwww.pwcmoneytree.com > Historical > Historical Trend Data Trend Data

10 year trends can be selected by 10 year trends can be selected by a number of criteria including a number of criteria including

statestate

Consistent with national, 2006 NC Consistent with national, 2006 NC investment was up slightly to investment was up slightly to

roughly ¼ of 2000 Peakroughly ¼ of 2000 Peak

$0

$500

$1,000

$1,500

$2,000

NC Investment $M 343 774 1,834 591 556 352 323 442 472

1998 1999 2000 2001 2002 2003 2004 2005 2006


Total Number of NC Deals Tracks Total Number of NC Deals Tracks National Trend National Trend

But Grew In 2006 Greater Than National 10%But Grew In 2006 Greater Than National 10%

$0

$20

$40

$60

$80

$100

$120

$140

$160

# Deals 83 104 156 93 85 74 55 54 65

1998 1999 2000 2001 2002 2003 2004 2005 2006


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

National 18.0% 10.0% 10.0% 2.0% 2.0% 8.0% 19.0%

NC 21.7% 21.4% 14.9% 8.7% 6.8% 5.6% 5.1%

Bio Comm Med Dev HC SvcsFin

SvcsSemi SW

Life Sciences Are Strong in NCLife Sciences Are Strong in NC(2006 MoneyTree Sectors)(2006 MoneyTree Sectors)


The Exit Scene - The Exit Scene - the importance of acquisitions the importance of acquisitions has become clear over the past has become clear over the past

several yearsseveral years

$0

$10

$20

$30

Offer ($ B) 7.5 11.1 4.8 3.8 20.9 25.5 3.5 2.1 2.0 11.0 4.5 5.3

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

IPO Levels Increased in 2004 but IPO Levels Increased in 2004 but rally was not sustainedrally was not sustained

Source: Thomson Financial/National Venture Capital Association

0

100

200

300

400

Median Val ($M) 112 108 182 342 247 322 223 228 255 203 257

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Recent Median IPO Valuations Are Recent Median IPO Valuations Are Consistently Higher than Pre-1999 Consistently Higher than Pre-1999 But Capital Efficiency is Still KeyBut Capital Efficiency is Still Key


0

50

100

IPOs Done 29 93 56 58

In Reg on last day 31 57 16 36

2003 2004 2005 2006

What’s in the IPO Pipeline?What’s in the IPO Pipeline?IPOs During Period and Registration Counts at Period IPOs During Period and Registration Counts at Period

EndEnd


IPO Markets Require More Maturity -- AgainIPO Markets Require More Maturity -- Again

[1999=4.3y. 2004=8.1y. Sample was very small for 2001-2003][1999=4.3y. 2004=8.1y. Sample was very small for 2001-2003]

0

2

4

6

8

Med

ian

Age

at

IPO

(Y

ears

)

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


0

100

200

300

400

# VB Acq 164 209 239 317 353 318 291 339 347 335

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

VB Acquisition Counts Don’t VB Acquisition Counts Don’t Change Much …Change Much …


$0

$20

$40

$60

$80

Acq $B 7 9 38 68 17 8 8 15 16 17

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

M&A Proceeds Vary Greatly As the M&A Proceeds Vary Greatly As the Mix between “Good” Exits and Mix between “Good” Exits and

Fire Sales ShiftFire Sales Shift


$0

$100

$200

$300

$400

Ave.

Dis

clo

sed

Acq

Pri

ce $

M

$M 111 65 69 233 338 102 52 63 83 96 114

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

M&A Exits Consist of High and M&A Exits Consist of High and Low Valuation Deals – Low Valuation Deals – Some Strengthening(?)Some Strengthening(?)


Venture Exit Counts- Venture Exit Counts- IPOs and M&A by YearIPOs and M&A by Year

0

100

200

300

400

500

600

700

73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00

'01

'02

'03

'04

'05

'06

Year

Nu

mb

er o

f Is

sues

M&A

IPO


Exit OutcomesExit Outcomes[Where Are They Now?][Where Are They Now?]

Still Private35%

Known Failed18%

Public or In Reg14%

Acquired33%

For First Fundings From 1991 to 2000, For First Fundings From 1991 to 2000, Approximately 33% Were Acquired and Approximately 33% Were Acquired and

14% Went Public14% Went Public[11,686 Companies Total][11,686 Companies Total]


Still Private68%

Known Failed8%

Public or In Reg3%

Acquired21%

Of Companies Receiving First Funding in Of Companies Receiving First Funding in 2001 and 2002, There Are Few Exits2001 and 2002, There Are Few Exits

Has Something Changed?Has Something Changed?[2040 Companies Total][2040 Companies Total]


Performance measurementPerformance measurement

Private Equity Returns - Private Equity Returns - Converging on Expectations? Converging on Expectations?

Fund Type 1yr 5 yr 10 yr

Early VC 11% -8% 37%

Later VC 16% 0% 10%

> All VC 16% -3% 21%

Buyouts 27% 7% 9%

All PE 22% 4% 11%

S&P 500 7% 1% 6%

NASDAQ 6% 2% 7%

As of 6/30/2006 Source: Thomson Financial/National Venture Capital Association

NVCA Annual MeetingNVCA Annual MeetingWashington DCWashington DCApril 17-18, 2007April 17-18, 2007

Trends and issues Trends and issues from beyond Palo from beyond Palo Alto and Alto and WashingtonWashingtonLatest thinking and Latest thinking and insightsinsightsIndustry, CFO, Industry, CFO, Young VC, Legal, Young VC, Legal, Corporate VC Corporate VC BreakoutsBreakouts

Www.nvca.orgWww.nvca.org

www.aeeg.orgwww.aeeg.org

North Carolina Council for Entrepreneurial Development The State of Venture Capital February 1, 2007...

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