NVCA JSTSWVF.ppt

Southwest Venture ForumSouthwest Venture Forum

Venture Capital Industry Venture Capital Industry UpdateUpdate

January 10, 2002January 10, 2002

John TaylorJohn Taylor

Vice President of ResearchVice President of Research

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NVCA Research Activities ...

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Dramatic new developments: NVCA & Venture Economics join forces with NVCA & Venture Economics join forces with

PricewaterhouseCoopers MoneyTree™PricewaterhouseCoopers MoneyTree™ Economic Impact of Venture Capital Study by DRI-Economic Impact of Venture Capital Study by DRI-

WEFAWEFA Research powers & empowers NVCA public policy Research powers & empowers NVCA public policy

effortsefforts Data available to participating NVCA members Data available to participating NVCA members

through new VentureXpert ™ interfacethrough new VentureXpert ™ interface Free trialFree trial Discounted annual subscriptionsDiscounted annual subscriptions

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Research A-Team Since 1998 NVCA & VE have been Since 1998 NVCA & VE have been

collecting survey data and publishing collecting survey data and publishing Starting immediately (4Q and full year Starting immediately (4Q and full year

2001) investment data will be called 2001) investment data will be called MoneyTree™MoneyTree™ PricewaterhouseCoopersPricewaterhouseCoopers Thomson Venture EconomicsThomson Venture Economics National Venture Capital AssociationNational Venture Capital Association

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Industry Benefits

Single designated survey for venture firms to fill Single designated survey for venture firms to fill outout Governed by NVCA board’s Appropriate Use Governed by NVCA board’s Appropriate Use

and Disclosure Policyand Disclosure Policy Processed by Venture Economics research Processed by Venture Economics research

team in NY and SFteam in NY and SF Local survey and results contacts through Local survey and results contacts through

PwC’s national technology team (150 PwC’s national technology team (150 professionals) deployed in local PwC officesprofessionals) deployed in local PwC offices

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Industry Benefits (continued)

Single set of results provided nationally and Single set of results provided nationally and locally through major medialocally through major media

Unprecedented data completeness and Unprecedented data completeness and accuracy for public policy effortsaccuracy for public policy efforts

Basic data available on PwC MoneyTree siteBasic data available on PwC MoneyTree site Analytics and detailed profiles are rolled up Analytics and detailed profiles are rolled up

from detail through powerful Oracle engine from detail through powerful Oracle engine

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Is your survey in yet???

Fax surveys directly to Venture Economics Fax surveys directly to Venture Economics research team at 973-622-1421research team at 973-622-1421

Questions to NVCA, VE, or local PwC officesQuestions to NVCA, VE, or local PwC offices

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The Economic Impact of Venture Capital on the US Economy ...

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Methodology Study commissioned by the NVCA and Study commissioned by the NVCA and

conducted by WEFA in Q1 – 2001conducted by WEFA in Q1 – 2001 Database of originally ventured Database of originally ventured

companies mapped against D&B companies mapped against D&B databasedatabase

Determined 2000 revenues and jobs Determined 2000 revenues and jobs represented by those companiesrepresented by those companies

Data cut by geographic region and Data cut by geographic region and industryindustry

Source: DRI-WEFA (analysis as of 8/2001

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DRI-WEFA Study Commissioned by NVCACommissioned by NVCA Venture funded firms now account for:Venture funded firms now account for:

7.6 million employees7.6 million employees Annual revenues of $1.3 trillion,Annual revenues of $1.3 trillion,

These figures represent:These figures represent: 5.9% of US payroll 5.9% of US payroll 13.1% of US GDP13.1% of US GDP 7.9% of US company revenue7.9% of US company revenue


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Key Findings

For every dollar invested in 1970-1999, For every dollar invested in 1970-1999, there was $9 in revenue during 2000there was $9 in revenue during 2000

For every $21,627 of venture capital For every $21,627 of venture capital investment in 1970-1999, there was one investment in 1970-1999, there was one job in the year 2000job in the year 2000

Not bad for an industry which was:Not bad for an industry which was: <1.0% in 1970-1995<1.0% in 1970-1995 2.1% in past 5 years 2.1% in past 5 years


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States with the Most Venture Backed Jobs in 2000 (000s)

California 1,400 Texas 676 Pennsylvania 425 Tennessee 382 Massachusetts 381 New York 369 Georgia 338 Washington state 264 New Jersey 260 Florida 244

Source: DRI-WEFA 2001 study

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States with the Most Venture Backed Revenues in 2000 ($B)

California 270 Texas 158 Washington State 75 New York 66 Georgia 63 Pennsylvania 58 Massachusetts 49 Illinois 41 Mississippi 39 New Jersey 38

Source: DRI-WEFA 2001 Study

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Fundraising

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Venture Capital Fundraising Was Strong Through 2000

$0

$20

$40

$60

$80

$100

$120

$B Raised 8 10 12 18 30 60 105 34

1994 1995 1996 1997 1998 1999 2000 9m01

Source: VentureXpert™ Database by VE & NVCA

This does not include money available for investment by Corporate Venture groups.

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The US Venture Industry Has Grown

Source: 2000 NVCA Yearbook

Year # VentureFirms

Capital Under Mgt

1980 87 $3B

1990 375 $32B

2000 693 $210B

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Sources of Venture Funds

Pension Funds40%

Endow & Found21%

Individ & Fam12%

Corps (as LPs)

4%

Financial & Ins23%

Source: VentureXpert™ Database by VE & NVCA for 2000

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Corporate Venture Capital Groups Have Become Very Involved

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$ Billion $0.29 $0.54 $1.02 $1.90 $9.52 $17.50 $4.17

1995 1996 1997 1998 1999 2000 9M01


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Corporate VC Groups are Involved in more than 1/4 of all Deals

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

% of $ 4.80% 4.50% 5.90% 8.40% 16.70% 16.80% 13.50%

% of Deals 7.50% 7.70% 11.90% 16.20% 28.40% 33.00% 26.10%

1995 1996 1997 1998 1999 2000 9M01


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

exaggerated

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The VC Industry has Grown Dramatically in the Past Few Years

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illi

on I

nve

sted

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000


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A Close-up Analysis of Recent Activity Shows Slowing

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$ M

illi

on I

nve

sted

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991


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A Close-up Analysis Shows Slowing

$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000

$ M

illi

on I

nve

sted

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991


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The VC Industry has Grown Dramatically in the Past Few Years

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illi

on I

nve

sted

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000


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$0

$10

$20

$30

Total VC $B 7.3 12.6 14.1 24.8 26.9 27.4 28.5 21.3 12.17 11.13 7.716

1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01

Recent Quarters Portend a Return to Traditional Activity Levels


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Industry Splits

Internet Spec27%

Commun22%

Medical7%

Semicnd11%

Biotech7%

Other9%

SW & CSvc17%

Source: VentureXpert™ Database by VE & NVCA for 3Q 2001

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Texas Venture Capital Investment -- More than a tale of two cities

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Venture Investment in Texas

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$Million 344 714 924 1,526 3,064 6,082 2,320

1995 1996 1997 1998 1999 2000 9mo01


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Number of Texas Companies Receiving Investment

0

50

100

150

200

250

300

350

# Companies 55 109 151 166 236 338 171

1995 1996 1997 1998 1999 2000 9m01


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Texas Investment in 3Q2001Commun

41%

Online Specific

10%SW/HW12%

Medical4%

Biotech4%

Other10%

Semicond

19%


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Texas - An Attractive Place to Invest

In 2000, Texas companies attracted In 2000, Texas companies attracted capital from 34 states and DCcapital from 34 states and DC


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The Exit Scene - the strong emergence of acquisition successes in a volatile IPO market

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After setting records in 1999 and 2000, IPO Markets are Quiet Now

$0

$10

$20

$30

IPO $B 4.7 8.3 11.6 4.7 3.6 17.8 21.1 3.2

1994 1995 1996 1997 1998 1999 2000 2001


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Acquisitions are an increasingly important exit strategy

$0

$20

$40

$60

$80

Acq $B 3.2 3.7 5.4 7.6 8.4 35.4 68.7 11.8

1994 1995 1996 1997 1998 1999 2000 9m01


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Nine Month VB Acquisition Counts Have Not Dropped As Much

0

100

200

300

# VB Acq 145 163 229 209

9m98 9m99 9m00 9m01


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Performance measurement

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Private Equity Returns - Over the Long Haul VC Returns 20-25%

Fund Type 1yr 5 yr 20 yr

Early VC -21% 55% 22%

Later VC -16% 25% 17%

Buyouts -7% 12% 17%

Mezzanine 21% 11% 12%

All PrivateEquity

-11% 22% 18%

As of 6/30/2001 - Source: VentureXpert™ Database by VE & NVCA

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Calculation of Number of VC Firms in US by the Wall Street Journal

Approximately 700 Approximately 700 VC firms per VC firms per NVCA/VENVCA/VE

Every one of them Every one of them claims to be in top claims to be in top quartilequartile

Therefore total # Therefore total # VC firms must be VC firms must be 2,8002,800

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Five Year Performance TrendsUS Venture vs Buyouts vs Stocks

0102030405060708090

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Q1

2001

Q2

Year

5-y

ea

r IR

R

VentureBuyoutsUS Large Stocks

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US Private Equity Funds Formed 1980-2000Net IRRs to Investors as of 30-JUN-2001

Stage 1 YR 3 YR 5 YR 10 YR 20 YrAll FundsVenture -18.7% 55.1% 38.5% 28.6% 18.8%Buyouts -7.2% 6.4% 11.9% 14.3% 16.4%

Private Equity -11.1% 20.0% 21.6% 20.3% 17.9%

Top Quartile Funds

Venture 2.2 114.2 74.0 43.8 29.0

Buyouts -5.2 34.1 36.0 31.7 39.5

Private Equity -0.5 67.5 54.7 38.2 31.8

Public Market

US Large Stocks -13.8 3.9 12.8 12.7 15.3

US Small Stocks -36.2 6.8 12.9 16.4 13.2

No one has repealed the business cycle …

Factors affecting the short term

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Investment Food Chain

Not All Segments are Healthy

$Markets Leadership (VC & Mgt)

Customers

Revenue

Profits

Liquidity (IPOs, Acqs)

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0

200

400

600

800

# Companies 337 354 334 419 286 428 520 628 699 740 654 536 401 270 199

1998-1

1998-2

1998-3

1998-4

1999-1

1999-2

1999-3

1999-4

2000-1

2000-2

2000-3

2000-4

2001-1

2001-2

2001-3

Venture Capitalists Continue to Fund Early and Seed Stage

Companies - Future Pipeline


No one has repealed the business cycle …

The Long Term View (whatever that means)

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The Inevitable Business Cycle ...

In times of great commercial prosperity In times of great commercial prosperity there has been a tendency [toward] over-there has been a tendency [toward] over-speculation on several occasions [after speculation on several occasions [after that]. The success of one project generally that]. The success of one project generally produces others of a similar kind. Popular produces others of a similar kind. Popular imitativeness will … drag a community too imitativeness will … drag a community too anxious for profits into an abyss …anxious for profits into an abyss …

Charles MackayCharles Mackay 18411841

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Companies Receiving First Venture Round (Series A) During Last

Downturn (1/1990-6/1992) ArtisoftArtisoft StarbucksStarbucks Intuit (FKA ChipSoft)Intuit (FKA ChipSoft) McAfeeMcAfee XpediteXpedite Palm ComputingPalm Computing Cutter & BuckCutter & Buck

RF Micro DevicesRF Micro Devices eFax.comeFax.com Shiva CorporationShiva Corporation Wind River SystemsWind River Systems FTP SoftwareFTP Software CheckFreeCheckFree SPSSSPSS

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Venture Capital Affects The Entire Country

NVCA/VE research team captures deals NVCA/VE research team captures deals in areas previously unreportedin areas previously unreported

In 2000 ...In 2000 ... Venture investment was made in 48 Venture investment was made in 48

states & DCstates & DC No Cal got 33% of money (28% of cos)No Cal got 33% of money (28% of cos) Calif got 41% of money (37% of cos)Calif got 41% of money (37% of cos)

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Challenges ...

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The care and feeding of existing portfolio companies ...

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Is there sufficient capital for follow-on financing?

Dry powder Dry powder (“overhang”) (“overhang”) estimated at $45B estimated at $45B as of 9/30/2001as of 9/30/2001

How much How much additional additional fundraising is fundraising is needed?needed?

0

10

20

30

40

19

95

19

96

19

97

19

98

19

99

20

00

20

01

P

First Round Investment

$B Invested


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Changing LP picture ...

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Limited Partners in VC Funds

Pension Plan Role is Decreasing

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 1999

Found/Endow

Ind/Fam/Oth

FOF

Priv Pension

Pub Pension


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Is there enough science going on in the US? What will it mean for

the coming decades?

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Federal Non-Defense R&D

Venture Financing Exceeds Federal Non-Defense R&D Budget

Exceeded Total Federal R&D Budget In 2000!

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illi

on

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Source: VentureXpert™ Database by VE & NVCA & AAAS Report Citing 2002 Federal Budget. Note Federal R&D statistics are constant 2001 dollars

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Scaling the Industry While Maintaining Excellent Service

Levels ...

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Many Options to Choose From Entrepreneur Personal FundsEntrepreneur Personal Funds ““Friends and Family”Friends and Family” Personal credit card and other borrowingsPersonal credit card and other borrowings Angel investorsAngel investors Venture capitalVenture capital Corporate direct investmentCorporate direct investment Venture leasingVenture leasing Mezzanine FinancingMezzanine Financing Merger and AcquisitionMerger and Acquisition Initial Public OfferingInitial Public Offering Secondary/Follow-on Public OfferingSecondary/Follow-on Public Offering Private Placements – Debt & EquityPrivate Placements – Debt & Equity Buyout/Acquisition FinancingBuyout/Acquisition Financing Corporate DebtCorporate Debt

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Growth in VC Principals Has Not Kept Up With Growing Fund Sizes

-10%

0%

10%

20%

30%

% Incr 5% 4% 1% -7% -2% -1% 0% 7% 10% 13% 12% 26% 30%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


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Venture Principals are Busier than Ever!

2.0

2.5

3.0

3.5

4.0

4.5

Taylorian Coefficient

showing relative

workload of VC principals as function of #

investee companies

Ratio 3.2 3 2.7 2.7 2.7 2.6 2.5 2.4 2.8 3.2 3.4 3.8 4.1

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000


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Scaling the Exit Markets ...

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Limitation - Future liquidity? As VC becomes a $100B a year industry, As VC becomes a $100B a year industry,

need to ensure future liquidity for exitsneed to ensure future liquidity for exits BOTEC exampleBOTEC example

$100B at 30% IRR grows to $286B after $100B at 30% IRR grows to $286B after four yearsfour years

In the first 10 months of 2000, $291B in In the first 10 months of 2000, $291B in new money was invested in stock mutual new money was invested in stock mutual fundsfunds

Opportunity for further analysisOpportunity for further analysis

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Where do I go for more specific information?

NVCA 2001 YearbookNVCA 2001 Yearbook VentureXpertVentureXpert www.nvca.orgwww.nvca.org What’s happening in my state/city?What’s happening in my state/city?

State specific histories: State specific histories: www.ventureeconomics.com/statshome. htm www.ventureeconomics.com/statshome. htm (choose left tab for Statistics)(choose left tab for Statistics)

NVCA staffNVCA staff

Www.nvca.orgWww.nvca.org

www.aeeg.orgwww.aeeg.org

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