Dialing Down: Venture Capital Returns to Smaller Size Funds

8/9/2019 Dialing Down: Venture Capital Returns to Smaller Size Funds

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Dialing Down: Venture Capital Returns to Smaller Size Funds

May 2010

VENTURE CAPITAL UPDATE 1

Do small venture capital unds outperorm

large venture capital unds? SVB Capital

is interested in understanding this

issue and the many dynamics necessary

or a healthy venture capital industry.

Median und sizes in venture capital have

declined dramatically in recent years,and many limited partners have liquidity

constraints that have caused them to

reduce or pull back rom allocations to

the asset class. At the same time, many

general partners realized little to no

carry (prot participation) over the past

decade. Lastly, realized and unrealized

returns or venture capital unds over the

past ten years have been disappointing.

Tese ongoing developments have posedundraising challenges or the surviving

rms and are gradually leading to a

compression in overall und sizes.

We believe the decline in und sizes

is a healthy trend or the industry. In

Dialing Down:

Venture Capital Returns to Smaller Size Funds

Written by:

Sven WeberManaging [email protected]

Jason LiouResearch Senior Associate650.855.3043

[email protected]

Edited by:Aaron GershenbergManaging [email protected]

this issue oVenture Capital Update, SV

Capital reviews historical return data a

nds evidence to support the common

held view that unds at the smaller end

the size spectrum consistently outpero

larger unds across vintage years. W

derive this result rom an analysis o tperormance o SVBs own portolio

unds as well as data rom Preqin, one o t

industrys leading providers o perorman

inormation. In total, we examine retur

rom more than 850 venture capital un

based in the United States.

Tere are many compelling reaso

or the attractiveness o small und

Managers o such unds oten haindustry-specic expertise and ocus

particular strategies or sectors compar

to those o larger unds which usua

target multiple stages and secto

Small unds tend to have a stro

general partner commitment, whi

Venture Capital Update

May 2010

Note: The original version ofthis report dated April 2010

contained an incorrect charton page 5. Please acceptthis corrected and expandedreport with our apologies.

View the Fourth Quarter

2009 U.S. Venture Capital

Snapshot
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Venture Capital Upda


May 2010


heightens the alignment o interests

with limited partners and potentially

increases investment discipline. In unds

with these characteristics, one or two

investments can provide positive returns

or the entire portolio. Limited partners

have recognized the potential upside

o investing in small unds and oten

expect managers to attain multiples o

at least 3x or an internal rate o return

(IRR) o at least 25 percent. Our analysis

corroborates this general view: We nd

that a higher portion o smaller-size

unds have achieved signicant returns

on a total value to paid-in capital (VPI)

and distribution to paid-in capital (DPI)

basis relative to large unds across most

vintage years between 1981 and 2003.

On the other hand, an increasingly

select group o brand-name rms that

have generated outsized returns willcontinue to nd limited partner support

to raise large unds. Many o these

rms have successully raised signicant

amounts o capital because they have

demonstrated an ability to adapt to

changing environments over the course

o their previous unds. Some o the most

successul brand-name rms employ

multiple strategies to achieve their results,

such as diversication across stages(early vs. late and growth), geographies

(multiple regions including global) and

sectors (technology, lie science and clean

technology). In many cases they employ

later-stage strategies that require large

investments o capital. Many o the most

successul large unds have also built

brands and a depth o expertise which

allow them to outperorm small unds.

Our data indeed reveals that a ew large

unds have been able to consistently

deliver a VPI multiple o 2 or above.

SVB Capital believes that the distribution

o sizes or unds with vintage years 2010

through 2012 will be dominated by

unds which are $250 million or less in

size. Larger brand name rms with top-

perorming track records will be able to

close on unds greater than $250 million

i they are able to demonstrate a realistic

ability to not only achieve multiples o 3x

and greater or early-stage investing and

2x and greater or late-stage strategies,but also generate an IRR north o 20

percent. Across the industry we expect

rms to reduce und sizes rom prior

unds by 25 percent to 50 percent in the

next ew years.

In the current environment all managers

are actively looking to right-size and

adjust their unds in order to maximize

return potential and ensure theirability to raise unds in the uture. Te

high cost o accessing venture capital

or both venture und managers a

entrepreneurs will help ensure that t

industry has the necessary discipline a

return objectives that are needed duri

times o low liquidity and a dicult e

environment, which will help set t

stage or signicant outperormance

markets improve.

AnAlyzing the PerformAnc

Profile of SmAll fundS

o examine the correlation betwe

venture capital und sizes and relati

perormance, SVB Capital analyzed

data set comprised o 509 venture capi

unds rom Preqin, a provider o data

the venture capital and private equ

industry.1 Te unds in the data set ha

at least $50 million under manageme

and span vintage years 1981 throu

2003. We also reviewed perorman

gures rom a set o over 350 un with vintage years 1995 through 20

that make up part o SVBs portolio

venture capital investments.

For this analysis, we based perorman

on two metrics that are commonly us

to assess the return on investment

a venture und: total value to pai

in capital (VPI) and distribution

paid-in capital (DPI). VPI providesmultiple value on the entire porto

both distributed capital and the n

Preqin collects und perormance data rom public sources, typically reports rom pension unds and other institutions that must provide their inancial perormance reportmandated by the U.S. Freedom o Inormation Act (FOIA) or similar legislation in oreign countries. Preqin advertises that its data have less selection bias than samples collecvia surveys or client investments because Preqins inormation would not omit better- or worse-perorming unds or be skewed upwards by institutional clients investment pic

1


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May 2010


asset value o the portolio while

DPI measures only the realized portion

o the portolio that was distributed

to the limited partner as a multiple

o contributed capital. IRR data was

not available, which we recognize is a

limitation o the analysis. All data are as

o, or close to, June 30, 2009.

o dene the parameters or the analysis,

we counted small unds as those that

managed between $50 million and $250

million in capital and large unds as

those with more than $250 million in

capital under management. Out o the

unds in the Preqin sample, just over 31

percent ell into the large category. All o

the unds were then sorted according to

their VPI perormance.

We discovered that across all vintage

years a larger portion o unds in the$50-$250 million range had outsize

perormance relative to the set o unds

that manage more than $250 million in

capital. As Chart A shows, 66 percent

o small unds in the Preqin database

had a VPI o at least 1.0, compared

to 49 percent o large unds. In act, 22

percent o small unds recorded a VPI

o at least 3.0, versus just 3 percent o

large unds.

Tis nding was not limited to unds

appearing in the Preqin database. We

examined the perormance o SVB

venture capital und investments that

had outperormed the Cambridge

Source: Preqin

(A): Small Funds Have a Better Perormance Proile than Large Fundswith Seven imes as Many Funds Achieving a 3x and Greater VPIMultiple

34% 20% 12% 12% 12% 1 0%

51% 32% 10% 3%2%1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage of Funds

Small Funds

($50 million - $250

million)

Large Funds

(>$250 million)

TVPI Distribution of Venture Capital Funds of Vintage Years 1981-2003


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May 2010


It is important to note that und sizes

in the venture capital industry have

fuctuated signicantly over the last ew

decades. Following the dot-com bubble,

the average und size declined until2004, when optimism across the industry

caused both the number o unds and the

average und size to increase. According

to data rom Tomson Reuters (see

Chart C), the average und size reached

a high in 2007 beore declining over the

next two years.2

o account or the substantial growth

in both the number o unds raisedand the average und size beginning in

1995 and 2003. More specically,

compared the perormance o the gro

o unds raised in 1995 through 19

against those ormed in 2000 throu

2003,3 as average und sizes chang

substantially during these two perio

(Appendix A). A comparison across the

periods based on a foating median

vintage year, however, would gener

misleading results. In evaluating t

sensitivity o the perormance o sm

unds relative to dierent und s

thresholds, we determined that sm

unds with vintage years 1995 throu

1999 exhibited a better perorman

distribution compared to large unds.

Te data also seems to suggest th

the downside potential o small un

Source: Thomson Reuters

(C): Fund Sizes Have Declined Since 2007

Mean Venture Capital Fund Sizes Since 1981

0

100

200

300

400

500

1981 1 983 1985 1 987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

NumberofFunds

$0

$40

$80

$120

$160

$200

M

F

d S i

( $ M )

Number of Funds Mean Fund Size ($M)

Source: SVB Capital, Cambridge Associates, LLC

(B): Among the Funds in SVBs Portolio o Investments thatOutperormed their Respective Cambridge Associates Benchmark,Small Funds Fared the Best, Surpassing the Benchmark by Over 50percent in Many Cases

1.811.60 1.60 1.70

2.58

1.03 1.031.25

0

0.5

1.0

1.5

2.0

2.5

3.0

$0-$10 $10-$20 $20-$50 $50-

$100

$100-

$200

$200-

$500

$500-

$1000

>$1000

Fund Size ($M)

AverageTVPI

Chart shows unds in homson Reuterss homsonONE database that have had an interim or inal close with a disclosed und size. Funds that were more than three standadeviations away rom the mean were removed rom the sample.

he median-sized und was not deined or vintage years 1981 through 1983, as there were only one or two unds in the data set.

2

3

the late 1990s, we examined the VPI

distribution or unds ormed between


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May 2010


is limited during periods o economic

volatility. We ound that a higher portiono small unds consistently had a VPI o

at least 1.0 relative to large unds across

most vintage years with the exception

o unds o vintage years 2000 through

2003, where a marginally larger number

o small unds actually perormed worse

than large unds.4 In act, most venture

capital unds ounded during the post

dot-com period have delivered poor

returns to their investors. Te limited

downside perormance o small unds

ormed during a dark period or the

industry should provide assurance to

managers who may be concerned thatsmall unds have a relative disadvantage

when the economy is in a downturn.

Te general perormance distribution

between small and large unds holds true

even when we measure perormance on

a DPI basis. Using the original $250

million cuto to separate small and large

venture capital unds, we ound that

a signicantly higher portion o small

unds with vintages 1981 through 2003

have perormed better compared with

large unds. For example, only 30%

small unds had a DPI o less than 0.

as o June 30, 2009, compared to 54

o large unds.

A lAck of reAlized returnS

hAS driven the decline in

fund SizeS

In the last year, the 10-year pool

returns or venture capital have all

dramatically. At the same time, retur

or the industry continue to be avoracompared to other private equ

classes and select public market indic

(NASDAQ and S&P 500). In additio

many endowments and oundatio

which have historically been the c

providers o capital or venture, ha

yet to recover the signicant value th

portolios lost during the nancial cris

Since limited partners oten make th

investment decisions based on lonterm returns and prospects or liquidi

certain investors have shited some

or all o their allocations away rom t

asset class.

As a result, the bar or undraising h

gone up or the majority o ventu

capital rms. Te cost o capital h

risen, and only a select group o r

that have collectively produced t

majority o returns or the indus

will encounter the ewest challenges

o study und perormance over incremental vintage year periods, we divided the unds in the Preqin dataset into the periods 1985-89, 1990-94, 1995-99 and 1999-2003 sorted them into buckets based on VPI perormance. here was insuicient data to include unds with vintage years 1981-84.

4

Source: Preqin

(D): Small Funds Have a Better DPI (Distribution-to-Paid-in) Proilethan Large Funds

Small Funds

($50 million -$250 million)

Large Funds

(>$250 million)


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May 2010


execute on a ocused strategy well ahead

o its competition.

Further, there are several considerationsthat should be noted in our above analysis.

First, the set o unds that we examined

is just a subset o the entire venture

capital und universe a problem that

oten appears when studying venture

capital und perormance. Although the

more than 850 unds in the SVB and

Preqin data sets spanned 21 vintage years,

approximately 50 percent o the unds

were raised between 1999 and 2002

only. Within the Preqin sample, there were very ew unds with vintage years

1981 through 1994. Tis contributes

to some uncertainty in our analyses

o und perormance across dierent

vintage year periods.

In addition, we did not control

other important und attributes such

investment stage, sector classication

geographic ocus. By isolating und s

and holding other variables constant,

could more clearly observe the degr

o correlation between und size a

perormance. In addition, we did n

have access to IRR data, which m

have yielded insights on strategy (e

late versus early) and perormance bas

on timing o cash fows rom u

investments.

SmAll fundS PoSSeSS

certAin AdvAntAgeS over

lArge fundS

Te trend towards ewer and smal

pools o capital is helping to impro

industry undamentals and issues

overcapitalization. Further, smal

venture capital unds have distinadvantages that provide them a speci

edge to provide top-tier returns.

1. Better alignment with investors

Smaller unds tend to have mo

attractively structured partnership ter

that create a stronger alignment betwe

general partners and limited partners.

the managers o such unds earn relativ

less rom management ees, they havestronger incentive to ocus on porto

perormance in order to generate weal

through carried interest.

raising capital or their next und. Firms

recognize that they will have to match

und size to market supply and are

continuing to adjust target und sizesdown accordingly.

fund Size iS JuSt one of

SeverAl determinAntS of

returnS

Although smaller und sizes appear to

be associated with higher returns, we

do not presume that the size o a und

is a direct predictor o returns. Other

important considerations that helpdetermine a unds potential success

include the quality and track record

o the general partner, its talent in

creatively and proactively capitalizing on

the changing landscape and its ability to

Source: Cambridge Associates LLC. Data were provided at no charge.

E): en Year Returns or Venture Have Fallen 32 Percent in One Year

Trend in Ten-Year Venture Capital IRR Returns Relative to Public Indices

35.2% 32.8% 33.9%

40.2%

35.0%

26.2%

14.3%

8.4%

-2.5%-3.7%-4.7%-3.2%

2.1%1.9%2.2%5.3%

-0.2%-2.2%-3.0%-3.0%

1.4%1.2%1.8%4.2%

-10%

0%

10%

20%

30%

40%

50%

12 /1/20 07 3 /1/ 20 08 6 /1/ 20 08 9/1/ 20 08 12 /1/ 20 08 3/ 1/ 20 09 6 /1/ 20 09 9/1/20 09

Data as of Cambridge Associates report date

All Venture NASDAQ S&P 500


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May 2010


Examples o Venture Capital Firms Maintaining or Reducing Fund Sizes

2. Leverage specialized industry

expertise

While established managers oten get

the most recognition or top-quartile

returns, they are not alone in their

success. Managers o smaller unds

typically develop a tighter ocus on a

specic niche or strategy that gives them

a competitive edge over other investors.

Focused managers can leverage their

sector and geography-specic networks

or high-quality deal fow. Tey use

their dierentiated expertise to more

quickly evaluate opportunities, thereby

increasing their chance o winning in a

competitive process.

3. Ability to complement large funds

Te deep experience and relationships in

specic sectors and regions that managers

o small unds cultivate place them in a

unique position in the venture capitalecosystem. Tis ensures a dierentiated

reputation, making the und a syndicate

partner o choice or larger venture

capital partnerships and allowing it to

attract world-class management teams to

its portolio companies. Dierences in

size, strategy and positioning allow small

and large unds to view each other as

partners rather than as competitors.

4. Fewer home runs are needed to

return the fund

Smaller und sizes, and hence ewer

investments, orce managers to ocus

on capital eciency. Tese managers

tend to pursue a strategy o signicant

initial ownership coupled with selective

participation in ollow-on rounds that

have compelling valuations and strong

investor syndicates. In unds with these

characteristics, one or two investments

can return the entire und.

toP-Performing mAnAgerS

of lArge fundS Will

continue to SucceSSfully

rAiSe lArge fundS

Venture capital managers whose large

unds have outperormed their pe

are more likely to continue raising lar

unds in the uture. Tese managers ha

usually succeeded in taking advantage

their brand name, have built strong tea

able to execute on larger investmen

or are more likely to invest in grow

or later-stage companies, which requ

larger amounts o capital. Tey m

also be successul investing in capit

intensive sectors such as hardwa

cleantech and pharmaceuticals. Hig

perorming managers show an abil

to execute strong pricing discipli

during the investment process a

bring sector-specic value-add to th

portolio companies. Tey use their s

to maintain a high ownership percenta

in portolio companies and may choo

not to rely on syndicates with oth

venture capital rms to nance th

companies. In many cases, past succhelps them create successul exits

their companies.

Latest Fund Vintage Target ($M) Previous fund Vintage Final Close ($M)

Battery Ventures IX 2010 $750 Battery XIII 2007 $750

Grotech Partners VII 2009 $250 Grotech Partners VI 2000 $410

Highland Capital PartnersVIII

2009 $400 Highland Capital PartnersVII

2006 $800

Polaris Venture Partners VI 2010 $500 Polaris Venture Partners V 2006 $1,000

Redpoint IV 2010 $400 Redpoint III 2006 $400

Trident Capital FundVII 2010 $400 Trident Capital Fund-VI 2005 $400

Venrock VI 2010 $350 Venrock V 2006 $600

Sources: Dow Jones Private Equity Analyst, Preqin, Thomson Reuters


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May 2010


Some large unds have multiple strategies

with many partners, and on a dollar-per-

partner basis, operate like a ew small

unds combined. For example, a $500

million und that targets three industry

sectors (technology, lie science and clean

technology) may have specic allocations

to those sectors that do not change over

the lie o the und. In such a vehicle,

each o the sector strategies is sometimes

managed by an investment committee

comprised solely o partners with expertise

in their respective industry.

A reduction in fund SizeS

iS PoSitive for the venture

cAPitAl induStry

We anticipate that the venture capital

industry will contract in size by 25 to

50 percent both in the amount o capital

raised and deployed and the number

o active rms. Te increased ocus ondierentiated strategies, investment

discipline and capital eciency as a result

o the scaling down o und sizes will

help drive returns or an asset class that

has long been an outsized contributor

to innovation and economic growth.

SVB Capital expects this will contribute

to limited partner and general partner

optimism in 2010. Should the public

and M&A markets continue to improve, we expect that venture capital returns

will outperorm other private equity

investment opportunities.

PleASe tAke our tWo-minute

Survey

SVB Capital welcomes questions and

comments you may have about smaller

venture capital unds. I youd like to

participate in a survey on this topic, please

click here (or go to http://questionpro.

com/t/Ajp2ZHWNC). All comments will

be kept condential, and we will be happy

to send you a summary o the results ater

the survey closes on May 31, 2010.

We are interested to get your eedbackon questions such as:

Over the last 12 months, how has your

view on the attractiveness o small

unds changed?

What do you eel are the most compelling

reasons or investing in small unds?

What do you eel are the primary risks

or investing in small unds?

Should limited partners hold higherreturn expectations or small unds

relative to large unds?

Do you think small unds with vintage

years 2010 or 2011 will have higher

returns than large unds?

What sector(s) do you think will realize

the best venture capital returns?
http://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNChttp://questionpro.com/t/Ajp2ZHWNC


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May 2010


APPendix A: SenSitivity AnAlySiS by fund Size And vintAge yeAr

Tese charts illustrate the dierence in perormance distribution o venture capital unds based on three dierent delineatio

between small and large unds ($150 million and $250 million). We also compare perormance or unds in the entire datas

(comprising vintage years 1981 through 2003) against those with vintage years 1995 through 1999 and 2000 through 2003.

Small Funds: $50M-150M

Small Funds

($50 million -$150 million)

Large Funds

(>$150 million)


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May 2010


Small Funds

($50M - $150M)

Larger Funds

(>$1 B)


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May 2010


tell uS WhAt you think

Send your comments and suggestions or topics to Jason Liou [email protected].

Tis update is or inormational purposes only and is not a solicitation or recommendation that any particular investor shou

invest in any particular industry, security, or und. Tis material, including without limitation to the statistical inormati

herein, is provided or inormational purposes only. Te material is based in part on inormation rom third-party sources th

we believe to be reliable, but which have not been independently veried by us and or this reason we do not represent th

the inormation is accurate or complete. Te inormation should not be viewed as tax, investment, legal or other advice nor

it to be relied on in making an investment or other decision. You should obtain relevant and specic proessional advice beo

making any investment decision. Nothing relating to the material should be construed as a solicitation, oer or recommendati

to acquire or dispose o any investment or to engage in any other transaction.


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May 2010


Fourth Quarter 2009 U.S. Venture Capital Snapshot

Venture Investment by Region, All Industries

Source: Dow Jones VentureOne

U.S. Venture Investing Activity

Source: Dow Jones VentureSource

Number of Deals

Amount Invested ($B)

$10.0

$7.5

$5.0

$2.5

$0

800

600

400

200

03Q

2008

4Q 4Q3Q2Q1Q

2009

6.1

8.2

4.2

5.6 5.4

6.3

681

612

505

629 743619

$(BILLIONS)

Most Active Venture Investors

Source: Dow Jones VentureSource* U.S.-based portfolio companies only

Firm NameAssets

Under MgmtNumber

of Deals*

Kleiner Perkins Caufield & Byers 3,305 20

New Enterprise Associates 10,650 19

Venrock 2,200 19

Domain Associates 2,469 13

Draper Fisher Jurvetson 4,410 13

First Round Capital 172 13

SV Life Sciences 1,939 13

Canaan Partners 3,000 12

North Bridge Venture Partners 2,647 12Versant Venture Management 1,585 12

Advantage Capital Partners 1,015

Bessemer Venture Partners 2,350 11

Intel Capital 1,130 10

Sequoia Capital 4,033 10

$ (MILLIONS)

U.S. RegionNum of

Deals

Num ofInvesting

Firms

AveragePer Deal

$ (M)Sum Inv.

$ (M)

San Francisco Bay Area 228 304 $9.9 $2,235.1

New England 108 143 9.1 983.9

Southern California 70 86 8.1 566.2

New York City Metro 55 89 8.7 459.2

Midwest 61 84 6.4 392.1

South 43 43 8.5 363.9

Mountain West 35 63 9.6 336.0

Pacific Northwest 31 44 9.5 293.4

Texas 35 50 5.7 200.8

Mid-Atlantic 35 47 5.2 180.7Potomac 21 31 5.9 123.9

Research Triangle 12 21 10.1 121.8

Other Northern CA 5 2 3.6 17.9

Other 2 7 3.0 6.0

Islands/Alaska 2 2 1.6 3.3

Fundraising by U.S.-Based Venture and LBO/Mezzanine Firms

Source: Thomson Reuters

$(BILLIONS)

Venture Capital

Buyout and Mezzanine

$70

$60

$50

$40

$30

$20

$10

$0

3Q 4Q 1Q 2Q 3Q 4Q2008 2009

65.4

20.3

2.13.6 5.2 4.2 4

26.2 27.1

16.2 148.5


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May 2010


IRR Perormance (%) by Vintage Year (U.S.)

Source: Thomson Reuters. Data are as of September 30, 2009.

VintageYear

Num ofFunds

Cap WtdAvg

PooledAvg

UpperQuartile Median

LowerQuartile

1996 36 59.2 83.0 113.9 3 3.0 1.3

1997 62 46.1 49.3 59.6 2 0.0 (0.9 )

1998 76 22.9 17.4 10.6 1.2 (4.7 )

1999 110 (6.8) (5.4) 0.6 (5.8) (14.3)

2000 126 (0.3) 0.6 1.9 (3.0) (6.9)

2001 57 1.0 2.0 7.3 ( 0.7) (4.2)

2002 20 0.3 1.8 2.4 (1.2) (3.1)

2003 17 4.2 3.9 8.6 2 .9 1.1

2004 23 0.4 1.0 5.5 (1.7) (6.1)

2005 22 1.0 3.8 6.2 ( 0.7) (7.8)

2006 33 (5.5) (4.9) 1.4 (5.2) (13.3)

2007 22 (9.1) (4.2) 3.0 (12.8) (17.2)

2008 12 (28.7) (25.7) (22.1) (29.2) (37.9)

US. Venture Liquidity Eventsby Industry

Source: Dow Jones VentureOne

2007 2008 1H 2009

Industry IPO M&A IPO M&A IPO M&A

Business and Fin. Services 8 92 1 50 1 51

Cons. Goods and Services 7 50 0 45 2 43

Energy and Utilities 2 6 0 0 0 4

Biopharmaceuticals 19 30 1 29 0 23

Healthcare Services 2 9 1 8 2 3

Medical Devices 8 21 2 15 0 22

Medical Software and IT 3 11 0 8 0 6

Ind. Goods and Materials 1 5 0 4 0 5

Comm. and Networking 10 44 0 30 0 25

Elect. & Computer Hard-ware 3 12 0 17 0 17

Information Services 0 0 0 0 0 0

Semiconductors 7 25 0 28 1 18

Software 8 178 2 146 2 108

Other 0 0 0 0 0 1

TOTAL 78 483 7 380 8 326

Cumulative IRR Perormance (%) by Stage (U.S.)

Source: Thomson Reuters. Data are as of September 30, 2009. Figures are for all funin database, vintage years 1969-2008.

Fund Type

Numof

Funds

CapWtdAvg

PooledAvg

UpperQuartile Median

LoweQuartil

Early /Seed VC 612 7.7 18.6 14.6 2.6 (5.3

Seed Stage VC 66 3.5 9.2 14.1 5.7 (1.

Early Stage VC 546 7.9 19.5 14.6 2.5 (5.6

Balanced VC 459 6.9 13.4 14.2 5.0 (1.

Later Stage VC 214 4.6 13.0 14.8 5.3 (1.

All Venture 1,285 6.7 15.1 14.6 3.9 (2.8

Small Buyouts 180 8.2 15.3 17.2 7.1 (0.

Med Buyouts 123 10.9 16.1 20.5 7.9 (1.

Large Buyouts 99 9.0 11.6 15.2 6.3 (1.

Mega Buyouts 142 (3.3) 8.5 13.0 4.4 (3.

All Buyouts 544 (0.3) 10.5 16.8 6.5 (1.

Mezzanine 73 5.7 7.7 11.8 7.1 1

Buyouts and Other PE 717 1.0 10.1 14.7 6.6 (0.9

All Private Equity 2,007 2.4 12.1 14.6 4.8 (2.0

U.S. IPO vs. M&A ransactions orVenture-Backed Companies

89 92

77 7984 86

1

3

0

03

2


Number of IPOs

Number of M&As

100

80

60

40

20

0

3Q 4Q 1Q 2Q 3Q 4Q2008 2009


14/15



May 2010


U.S. Venture-Backed M&A Activity


$(BILLIONS)

Number of Deals

Amount Paid ($B)

3Q

2008

1Q

2009

3Q4Q 4Q2Q$0

$6

$3

$9

$12

0

25

50

75

100

5.1 4.9

3.52.9 2.6

7.3

77928684

7989

Price Change

Source: Fenwick & West L.L.P.

he direction o price changes or 112 San Francisco Bay Area companies

receiving inancing, as compared to their previous rounds.

80%

70%

60%

50%

40%

30%20%

10%

0%

Down

Flat

Up

73

1215

54

33

13

25

46

2932

46

22

41

36

23

47

30

19%

3Q

2008

1Q

2009

4Q 2Q 3Q 4Q

23

Venture Capital BarometerM

Average per share % price change rom previous round o Silicon Valley

companies receiving VC investment in the applicable quarter. Complete report

available at http://www.enwick.com/vctrends.htm

Source: Fenwick & West L.L.P.

Net Result of Rounds

60%

50%

40%

30%

20%

10%

0%

-10%

55%

25%

55

11%-6%-3%

19%

3Q

2008

1Q

2009

4Q 2Q 3Q 4Q


15/15

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