Venture Partners AS Leveraging the Nordic Internet Edge Presentation BI, MBA-class 18 February,...

Venture Partners AS

Leveraging the Nordic Internet Edge

Presentation

BI, MBA-class 18 February, 2000

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


Investment Focus

Internet

Media

TelecomInformation

Tech.

VPM Focus


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


Technology is the Fastest Growing Component of U.S. GDP

Source: BEA

-5%

0%

5%

10%

15%

20%

25%

30% I 1

98

8

IV

19

88

III 1

98

9

III 1

99

0

II 1

99

1

I 1

99

2

IV

19

92

III 1

99

3

II 1

99

4

I 1

99

5

IV

19

95

III 1

99

6

II 1

99

7

I 1

99

8

IV

19

98

III 1

99

9Year-

over-

Year

Gro

wth

IT Growth

GDP Growth


InternetInternet InternetInternetRevenuesRevenues JobsJobs

The US Internet economy

Internet Infrastructure $115.0 Billion 372,462Provides products that createor enable an IP network infrastructure

Internet Applications $56.3 Billion 230,629Creates applications that enablebusiness over an IP network

Internet Intermediary $58.2 Billion 252,473Facilitates the meeting ofbuyers and sellers online

Internet Commerce $101.9 Billion 481,990Sells products over the Internet

Internet Economy Totals $301.4 Billion 1,203,799

It took the automotive and energy industry It took the automotive and energy industry 100 years100 years to match similar figures to match similar figuresIt took the automotive and energy industry It took the automotive and energy industry 100 years100 years to match similar figures to match similar figures

Source: Study sponsored by Cisco Systems and conducted by the University of Texas (1999 estimate)


The Internet - is affecting all of us

Andy Grove, Chairman of Intel, said in 1999.

In five years’ time, all companies will be Internet companies — or they won’t be companies.

In five years’ time, all companies will be Internet companies — or they won’t be companies.


US Internet companies attract strong values

*Data as of 7/30/99 % change Mkt Cap*Company Ticker Description since IPO ($MM)

1 Microsoft MSFT Software/Internet 29878 % 444 7172 America Online AOL Portal/ISP 27331 % 107 2933 Charles Schwab SCH E-broker/Finance Portal 6745 % 37 4444 Yahoo! YHOO Portal 6223 % 34 9395 Amazon.com AMZN E-commerce portal 3285 % 16 4096 Excite XCIT Portal 795 % 15 5657 EBAY EBAY E-trade 1604 % 12 8068 Priceline PCLN E-trade - travel 403 % 11 4579 CMG Info.n Svcs CMGI Internet holding company 14741 % 8 912

10 E*trade Group EGRP E-broker/Finance Portal 1119 % 7 47111 Juniper Networks JNPR ISP 326 % 7 08512 Real Networks RNWK Internet software 1154 % 5 49613 Exodus EXDS Internet software 1582 % 5 19114 Inktomi INKT Internet software 1058 % 5 09015 eToys ETYS E-commerce 114 % 3 458


US Internet companies vs. Norwegian Blue Chips

*Data as of 7/30/99 Mkt Cap*Company Ticker ($MM)

1 Microsoft MSFT 444 7172 America Online AOL 107 2933 Charles Schwab SCH 37 4444 Yahoo! YHOO 34 9395 Amazon.com AMZN 16 4096 Excite XCIT 15 5657 EBAY EBAY 12 8068 Priceline PCLN 11 457

Norsk Hydro 11 2739 CMG Info.n Svcs CMGI 8 912

RCCL 7 91410 E*trade Group EGRP 7 47111 Juniper Networks JNPR 7 08512 Real Networks RNWK 5 49613 Exodus EXDS 5 19114 Inktomi INKT 5 090

Nycomed Amersham 3 93015 eToys ETYS 3 458

Orkla 2 935


11 of the 15 most valuable US Internet stocks are less than 5 years old

Mkt Cap*Company ($MM) Foundation

1 Microsoft 444 717 19752 America Online 107 293 19853 Charles Schwab 37 444 19744 Yahoo! 34 939 19945 Amazon.com 16 409 19956 Excite 15 565 19947 EBAY 12 806 19958 Priceline 11 457 19969 CMG Info.n Svcs 8 912 1986

10 E*trade Group 7 471 199511 Juniper Networks 7 085 199412 Real Networks 5 496 199513 Exodus 5 191 199414 Inktomi 5 090 199615 eToys 3 458 1996

* Share prices as of 7/30/99


Active Venture capital funding has facilitated rapid growth


Venture capital - the chief source of funding for Internet businesses

0

1

2

3

4

5

6

7

8

9

1.half 97 1. Half 98 1. Half 99

USD millions

Average Deal size of Internet Related Investments

0

1

2

3

4

5

6

1. Half 98 1. Half 99

USDbillion

Investments in Internet Related companies

Source: PriceWaterhouseCoopers, September 1999


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


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”


Where Are We Going?

2000- 2002 Estimate

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


Segments that will drive Internet growth

Source: Morgan Stanley Technology Research

Rev

enue

Infr

astr

uctu

re

Time

Soft

war

e &

Ser

vice

s

Con

tent

/Agg

rega

tion

Ret

ail/C

omm

erce

Bus

ines

s

Ree

ngin

eeri

ng/S

ervi

ces/

Ver

tical

s

1998 1999 2000 2001 2002

European Average – 3 years lag behind US

VPM III Focus


European Internet Growth

22,4

33,5

48,0

63,8

75,8

91,0

100,3

109,5

0,0

20,0

40,0

60,0

80,0

100,0

120,0

1997 1998 1999E 2000E 2001E 2002E 2003E 2004E

M U

se

rs

Source : Morgan Stanley Dean Witter, June 99

Internet growth highest outside US The European market will triple in 5 years


Nordic Countries are ahead

Million Users Population PercentFinland 1,57 5,10 30,8Norway 1,34 4,40 30,5Sweden 2,58 8,80 29,3Denmark 0,95 5,30 18,0Switzerland 1,00 7,10 14,1UK 8,10 58,10 13,9Netherlands 1,96 15,30 12,8Europe 33,60 384,20 8,8Germany 7,14 82,10 8,7Belgium 0,79 10,20 7,7Ireland 0,26 3,70 7,1Austria 0,54 8,10 6,7Spain 1,98 39,30 5,0France 2,79 58,60 4,8Italy 2,14 57,60 3,7Portugal 0,26 10,00 2,6Greece 0,24 10,50 2,3

USA 64 270,3 24 %

1. Based on the total population, including children

Source: Computer Industry Almanac. 1998 figures

Source: Population Estimates Program, Population Division,

U.S. Census Bureau

Source: Morgan Stanley Dean Witter

The Nordic countries are ahead of Europe

Nordic user rates in the rest of W Europe will result in 130 million users


Internet Access on Any Device - A special Nordic Stronghold

MP3 Players1.3 million units shipped - 1999Source: Cahners, IDC

Personal Computers

Worldwide Installed Base (millions)1998E 1999E 2000E295 340 390

Source: IDC, TWP estimates

Personal Digital Assistants

Worldwide Shipments (millions)1998E 1999E 2000E7.4 10.7 14.8

Source: IDC

Internet Enabled

Wireless Phones

20


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

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


History

March 1994

Aug 1996

Feb 1997

Aug 1998

Sep 1999

Dec 1999

Venture Partners founded. First start up (HUGIN) initiated and launched 1995

Internet is seen as a market with significant upside. Work is initiated to establish an Internet Venture Fund

VPM I established with a funding of NOK 51 Mill.

VPM I is fully invested. VPM II is raised with a funding NOK 71 million

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.


VP principles

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.

Exercise active ownership through significant share-holding in investment targets and deep involvement in management in critical phases.

Prioritise activities related to financial and strategic partnerships as well as exit opportunities with an objective of creating the highest possible return on the investment.

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.

Focus

Hands on ownership

Value creationperspective

Pure VC approach


The VPM III “Cluster”Venture PartnersA staff with both Internet and start up experience and a combination of skills necessary to run an outstanding Venture Capital entity

Venture AdvisersConsultants with 20 years combined experience inthe software / media industry

Advisory BoardKey experts in the fieldof technology and Internetthat advises on investmentsand follow up

International PartnersNetwork of Venture andtechnology partners in Europen and the US that Venture Partners works with on different occasions.

Entrepreneur NetworkEntrepreneurs in - and outside of portfolio companies that make time available for VPM and related companies


Hands on approach Some examples

Bilguiden.no

Jobshop.no

Reisefeber.com

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 PartnersMultimedia II(Invested 0898 - 0999)

71117

Commited Total Value

Financial performance

IRR 155%

IRR 66%

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

51

537

Venture Partners Multimedia I(Invested

0397 - 0798)

Committed TotaL Value


Track Record

STEPSTONELAST MINUTE

FILEFLOW

MASS MARKETSEVEN MOUNTAINS

BILGUIDEN

HUGIN

PORT AUTHORITY

REISEFEBER

SKIINFOSU-SOFT

Gorillas

3000 - 5000

Percent return

Funded for growthOn the ThresholdUnder Performers

MIKOSSALGSNETT

GURU SOFTWARE

50 -300

N.A.

Fund 1

Fund 2


The Stepstone Story

March 97

VPM I acquires 50 percent of Jobshop forPrising: NOK 8 mill. (USD 1 mill)

May 97

Aggressive building of telesales organisation in Norway

June-Sept 97

Acquisitions in Sweden and Den-mark. Rapid organic growth and roll-out of unified product

2. Round of financing (USD 2 mill)Aggressive TV and internet advertising throughout Scandinavia,

Dec 97.-June 98

June-Aug. 98

German acquisition closed, European strategy defined

Oct. 98 - March 99

VCs invited into company, USD 17 mill closed with selected VCs

Apr.99-Oct. 99New 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


Risk Mitigation - investor perspective

10 %

40 %30 %

14 %6 %

Cash

Bonds

Stock listed shares

Private equity

Venture Capital

Typical Asset allocation for a professional investor


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


Later stage not necessarily less risky than seed

• 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.

Earlystage

Seed IPO ListedExpan- sion


How do we then invest ?

Invest in superior management teams

Invest in companies with a huge market potential

Establish milestones

Make use of advanced equity instruments

Team up with partners

The quality of the management is by far the most important element related to risk assessment

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 related to technology, customers, partners or sales and if possible distribute equity in tranches

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

The chances of success can be significantly increased by putting together a group of investors contributing with strategic, financial and networking skills


Then what do we do when we have invested ?

Speed is the name of the game

Act immediately on underperformance

Put on high calibre management resources

Stay hands on and set clear targets as investor

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.

Problems will grow if unattended. If budgets are not reached, they will not be fulfilled without prior action.

Furnish the company with competent managers. As a company grows internationally, new skills and experience has to be added.

Stay hands on and actively follow up the portfolio companies. Define a clear and ambitious strategy. Stay in close personal contact with top management


My message

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 AS Leveraging the Nordic Internet Edge Presentation BI, MBA-class 18 February,...

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