Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002

Global Software II Introduction

Paving the Way to the US Market For Finnish Software Companies

Copyright Global Software II 2002




Is Venture Capital Dead ?

Victor V Vurpillat Ph.D.

Global Software II




Thanks to Donald R. DixonManaging Director

Trident Capital




The US Venture Industry Has Grown

Source: 2000 NVCA Yearbook

Year # Venture Firms

Capital Under Mgt

1980 87 $3B

1990 375 $32B

2000 693 $210B




$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

VC Funds Raised




Corporate VCs in ¼ 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




Return to Normal

$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 7.71

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




After Setting Records In 1999 and 2000, IPO Markets Are Quiet Now

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




Acquisitions Are An Increasingly Important Exit StrategyAcquisitions 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




Is There Sufficient Capital For Follow-on Financing?

Is There Sufficient Capital For Follow-on Financing?

$0

$10

$20

$30

$40

$B In

vested

1995

1996

1997

1998

1999

2000

2001

P

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




Where Do U.S. VCs Invest? Information Technology

– Internet Specific– Communications and Media– Computer Software & Services– Semiconductors & Other Electronics– Computer Hardware

Life Sciences– Medical Devices/Healthcare Services– Biotechnology

Other– Consumer-related– Industrial/Energy– Other Products




U.S. Venture Capital Investments into European Companies – By

Stage

U.S. Venture Capital Investments into European Companies – By

Stage

StageNumber of

CompaniesNumber of

Firms

Early Stage 541 171 3,259$

Late Stage 923 301 8,675$

Acquisition 41 15 2,497$

Other 11 7 439$

TOTAL 1,516 494 14,869$

Total Investment ($M)




U.S. Venture Capital Investments into European Companies – By Industry Group

U.S. Venture Capital Investments into European Companies – By Industry Group

Industry GroupNumber of

CompaniesNumber of

Firms

Information Technology 1003 388 11,505$

Life Sciences 153 72 1,063$

Other 228 89 2,532$

TOTAL 1384 549 15,100$

Total Investment ($M)




Venture Capital Investments into European Companies By U.S. Firms


10951

161

60

331

103

931

243

616

160

0

200

400

600

800

1000

1997 1998 1999 2000 2001

No. of European Companies No. of U.S. Firms






$0.8B $1.1B

$3.2B

$4.7B

$10.3B $7.7M

$11.1M

$9.5M

$7.1M$7.5M

1997 1998 1999 2000 2001

Total Investment ($B) Avg Investment Per Company ($M)




How VCs Make Decisions




Company Life Cycle$Markets Management

Products/Services

Revenue

Profits

Liquidity (IPOs, Acqs)

Customers




How Do U.S. Venture Capitalists Decide Which Deals To Fund?

How large is the company’s market?Focus on large markets, but markets where there is the potential to dominate at least one segment.

What is the capital intensity of the proposed venture? Venture capital funds usually invest multiple millions of dollars

in each deal.

What is the quality of the company’s management team?Probably single most important factor for long term success.




How Do U.S. Venture Capitalists Decide Which Deals To Fund?

What is proprietary or unique about the company? How does it differ from competitors?

Proprietary content often effects valuation.

How large and profitable can the company get?Generally looking for large opportunities…$100+ million profitable company in 5-7 years. Looking for a compelling idea not just marginal improvement over the status quo.

Other factors include deal structure and terms, co-investors, etc.




What Are the Characteristics of a Typical U.S. Venture Capital Transaction?

An equity (convertible preferred stock) investment in a private earlier stage or emerging growth company typically seven figures

Long-term relationship (3 - 8 years)

Board seat

Staged financing

Syndication with other VC firms




Valuation Gap

Valuation Parameters

Source: Morgan Stanley, Trident

Valuation

$50M@ 250M

$10M@ 50M

$5M@ 25M

$1M@ 5M

Declining Risk

Product Launch

Proven Consumer

Acceptance Profitability

Recent Cycle

1st Round

Seed

Mezz

IPO

1st Round

Seed

IPO

2nd Round

Traditional Cycle1st RoundSeed

IPO

2nd Round

Current Cycle




What Type of Help and Guidance Do U.S. Venture Capitalists Typically Provide Their

Portfolio Companies? Initial and ongoing source of cash - as a direct provider

and as a facilitator in raising funds from others

Give credibility to company - especially in establishing

corporate partnerships and customer relationships.

Help recruit key executives, individual contributors, and

board members




Typical Issues To Resolve

Location of R&D Team

Location of Sales & Marketing Organization

Location of Headquarters

Founder to CEO transition




Venture Capital is not Dead After All

BUT!




•Less than 3 out of 100 deals get funded




•The Golden Rule is alive and well




•Expect to be replaced




Documents

Global Software II Introduction Paving the Way to the US Market For Finnish Software Companies Copyright Global Software II 2002