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Startup Capital Ventures Venture Capital Climate for Q3 2010 shows an imbalance between inflows and investments despite an excellent IPO and M&A environment and strong VC returns.
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Hong Kong Silicon Valley
What’s Going On In The US VC Cycle?
Page 2
VCs Invest In Startups
Startups Exit Via M&A or
IPO
VCs return
capital to LPs
LPs Invest In
VCs
Hong Kong Silicon Valley Page 3!
US Venture Fundraising Bumping Along At Record Lows Of $2-3B Per Quarter
Source: Thomson Reuters / NVCA
0
2000
4000
6000
8000
10000
12000
14000
16000
2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3
Mo
neys
Rais
ed
($
M)
Year / Quarter
US Venture Capital Raised
Hong Kong Silicon Valley
Although Slightly More (& Therefore Smaller) Funds Were Raised
Page 4!
0
10
20
30
40
50
60
70
80
90
2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3
Num
ber o
f Fun
ds
Quarter
Number Of US VC Funds Raising Capital
Source: Thomson Reuters / NVCA
Hong Kong Silicon Valley
VC Has Outperformed Public Market Returns
Page 5
Source: Cambridge Associates
• .com boom • .com bust
Hong Kong Silicon Valley
A Good Proportion Of Funds Raised Were New Funds
Page 6!
Source: Thomson Reuters / NVCA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fu
nd
s R
ais
ed
(C
ou
nt)
Quarter / Year
New Vs. Follow-On Funds Raised
New
Follow On
Hong Kong Silicon Valley
Fundraising Has Slowed For Several Reasons
Page 7
“Over the last two years, alternative asset allocations have declined and the exit market has suffered, putting venture firms in the unenviable position of communicating their value in an extremely challenging environment.
- Mark Heesen, NVCA
Current cash-flow needs have shifted some LPs asset allocations away from illiquid and alternative asset classes such as VC & PE
Hong Kong Silicon Valley
$-
$1,000,000,000
$2,000,000,000
$3,000,000,000
$4,000,000,000
$5,000,000,000
$6,000,000,000
$7,000,000,000
$8,000,000,000
$9,000,000,000
Am
ou
nt
Invest
ed
($
)
Year / Quarter
US Venture Capital Invested (2003 - 2010)
Page 8!
However Venture Capital Invested Has Rebounded To $5-6B Per Quarter
Source: Thomson Reuters / NVCA
* Last quarter is always under-counted
Hong Kong Silicon Valley
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2004 2005 2006 2007 2008 2009
Mo
nie
s In
vest
ed
(%
)
Year
US Venture Investing Mix Telecommunications
Software
Semiconductors
Retailing/Distribution
Other
Networking & Equip't
Med Devices & Equip't
Internet & Web 2.0
IT Services
Cleantech
Healthcare Services
Financial Services
Electronics/Instruments
Consumer Prod's & Svc's
Computers & Peripherals
Business Prod's & Svc's
Biotechnology
<<<<<<<<< Cleantech >>>>>>>>>>
<<<<<<<<<<Software >>>>>>>>>>>>
<<<< Semiconductors >>>> <<< Medical Devices >>>
IT services Internet
Software & Biotech Remain Largest Sectors With Cleantech & MedTech Growing
Page 9!
Source: Thomson Reuters / NVCA
2010
Hong Kong Silicon Valley
Silicon Valley & Route 128 Remain 50% Of Market, But L.A. & N.Y. Growing
Page 10!
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010
Upstate NY
Unknown
Texas
SouthWest
Southeast
Oklahoma
Silicon Valley
San Diego
Sacramento/N.Cal
Philadelphia Metro
NY Metro
Northwest
North Central
New England
Midwest
LA/Orange County
DC/Metroplex
Colorado
Source: Thomson Reuters / NVCA
Hong Kong Silicon Valley
US Maintaining Its Share (65%) In Global Venture Market
Page 11!
0
5
10
15
20
25
30
35
40
45
50
2007 2008 2009 2010 *
Invest
men
t (%
Of
Mo
nie
s)
Year
Venture Capital Funding By Region
US
Israel
India
China
Europe
Source: DowJones VentureSource * 2010 based on Q1 statistics
Hong Kong Silicon Valley
Investment Is Focused On Expansion Stage
Page 12!
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010
Perc
enta
ge O
f Mon
ies
By
Stag
e
Year
US Venture Monies Invested By Stage
Later Stage
Expansion
Early Stage
Startup/Seed
Source: Thomson Reuters / NVCA
Hong Kong Silicon Valley Page 13!
Fewer A & B Rounds But More C & D Reflect VC Tilt To Expansion Deals
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2
Seri
es
Mix
(%
)
Quarter / Year
Series Of Venture Funding Over Time
E & Later D C B A
Source: Fenwick & West
Hong Kong Silicon Valley
First And Expansion Round Sizes Increased While Late Stage Has Fallen
Page 14!
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2005 2006 2007 2008 2009 2010 Total
Aver
age
Inve
stm
ent S
ize
($)
Year
Investment Round Size By Stage
Startup/Seed
Early Stage
Expansion
Later Stage
Overall Average
Source: Thomson Reuters / NVCA
Hong Kong Silicon Valley
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 Q1
Q2 Q3 Q4 2008 Q1
Q2 Q3 Q4 2009 Q1
Q2 Q3 Q4 2010 Q1
Q2
Up
/ F
lat
/ N
eu
tral V
alu
ati
on
s (%
)
Year / Quarter
Financing Round Valuation Mix
Up Flat Down
Page 15!
Up-Rounds Back To Majority Of Of Funding Events
Source: Fenwick & West
Hong Kong Silicon Valley
Multiple Liquidation Pref’s Normative But Pay To Play* Increasing
Page 16!
Source: Fenwick & West
0%
5%
10%
15%
20%
25%
30%
2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 Q1 2010 Q2
Perc
en
tag
e o
f R
ou
nd
s w
/P
rovis
ion
s
Year / Quarter
Investment Round Provisions
Multiple Liquidation Preferences Pay To Play
* A new form of contractual “pull up” whereby conversion to common is automatic if participation does not occur is emerging
Hong Kong Silicon Valley Page 17!
Exits! VC-Backed M&A & IPO Activity Is Healthy: $16B Raised In Q3
Source: Thomson Reuters / NVCA
0
20
40
60
80
100
120
140
2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3
Tra
nsa
ctio
n C
ou
nt
Quarter
US Venture-Backed IPO & M&As
IPOs M&As
Hong Kong Silicon Valley
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
2006 Q1 Q2 Q3 Q4 2007 Q1 Q2 Q3 Q4 2008 Q1 Q2 Q3 Q4 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3
Tra
nsa
ctio
n /
Off
eri
ng
Siz
e (
$M
)
Year / Quarter
Venture Exit Transaction Sizes
Avg. Reported M&A Value Avg. IPO Float
Page 18!
VC-backed IPO and M&A Deal Size Is Strong & VCs Will Be Returning Capital To LPs
Source: Thomson Reuters / NVCA
Hong Kong Silicon Valley
The Venture Funding Cycle Is Imbalanced*
Page 19
VCs Invest $5B In Portfolio
$16B In Venture Exits
LPs Invest $3B In VCs
Sources: Thomson Reuters, Dow Jones, Fenwick & West
* Q3 2010
Hong Kong Silicon Valley
A Fork In The Road: Market Equilibrium Must Return (One Way Or Another)
• VC exit activity of $16B in Q3 is at the highest levels since 2007 with good valuations
• VCs returning capital to LPs again • VCs are investing at levels of $5 - $6B per quarter... • But LPs are funding VCs at at just $2 - $3B per quarter
Page 20
• Venture capital declines to match lower LP investment in VC
• VC continues at today’s level if LPs increase allocation to VC sector
www.startupcv.com [email protected]
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