Today’s Venture Capital LandscapeBobby Franklin, President & CEO, NVCA

Agenda

• Introduction to National Venture Capital Association (NVCA)

• 6 US VC Trends to Watch

• What’s Happening in Texas

• Public Policies Affecting the Startup Ecosystem

The National Venture Capital Association (NVCA) empowers the next generation of American

companies that will fuel the economy of tomorrow.

As the voice of the U.S. venture capital and startup community, NVCA advocates for public policy that supports the American entrepreneurial ecosystem

Who We Are

6 US Venture Capital Trends to Watch

5

Though exit activity dropped in 2H, 2019 will be remembered as a milestone year for VC-backed exits

Annual US VC Exit Activity

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

$22 $4

1

$67

$125

$72

$111

$76

$73

$98

$130

$256

479

707 740

871 905

1,0811,030

906 9281,015 882

0

200

400

600

800

1000

1200

$0

$50

$100

$150

$200

$250

$300

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Exit value ($B) Exit count

$52

$143

$43

$19

213

272

223

174

Q1 Q2 Q3 Q4

2019 Quarterly Exit Activity

1

6

Ample dry powder + nontraditional investors pushed dollars into startups to $135B+ for 2nd straight year

US VC Investment Activity

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

$27

$31

$46

$41

$48

$72

$84

$78

$87

$140

$137

4,535

5,444

6,806

7,937

9,387

10,684 11,014

9,61210,326 10,542 10,777

0

2,000

4,000

6,000

8,000

10,000

12,000

$0

$20

$40

$60

$80

$100

$120

$140

$160

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Deal value ($B) Deal count

2

7

# of deals plateaus at all stages; late stage $ has nearly doubled, fueled by $100M+ rounds (“mega deals”)

VC Investment by Stage(# of deals)

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

3

5,743

4,736 4,9214,541 4,556

3,2403,003

3,3703,722 3,624

2,031 1,873 2,0352,279

2,597

2015 2016 2017 2018 2019

Angel & Seed Early VC Later VC

$6.8 $6.4 $7.4 $9.2 $9.1

$26 $25$31

$43 $42

$51$46 $49

$88 $85

2015 2016 2017 2018 2019

Angel & Seed Early VC Later VC

VC Investment by Stage($B)

$22

$20

$21

$52

$49

87

56

85

164181

0

20

40

60

80

100

120

140

160

180

200

$0

$10

$20

$30

$40

$50

$60

2015 2016 2017 2018 2019

Deal value ($B) Deal count

Late Stage Mega Deals ($100M+)

8

Sectors to watch – newly created sectors related to health, security & data are changing our lives

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

4

$5 $4 $6 $7 $8

599 567

658 654 659

500

550

600

650

700

$0

$2

$4

$6

$8

$10

2015 2016 2017 2018 2019

HealthTech Investment$4 $3 $4 $4 $5

291291

322

309311

270

280

290

300

310

320

330

$0

$1

$2

$3

$4

$5

$6

2015 2016 2017 2018 2019

Cybersecurity Investment

$11

$9 $13

$19

$17

706645

777831 866

0

200

400

600

800

1,000

$0

$5

$10

$15

$20

2015 2016 2017 2018 2019

Pharma & Biotech Investment

$7 $13

$9 $18

$19

592

7831,102

1,347 1,367

0

500

1,000

1,500

$0

$5

$10

$15

$20

2015 2016 2017 2018 2019

Artificial Intelligence & Machine Learning Investment

9

Looking ahead, investors flush with capital to put to work in startups in 2020 and beyond

US VC Fundraising Activity

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

$13

$19

$23

$25

$20

$35

$37

$42

$34

$58

$46

121

150 151

204216

294308

321

276299

259

0

50

100

150

200

250

300

350

$0

$10

$20

$30

$40

$50

$60

$70

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital raised ($B) Fund count

5

10

Mega deals/unicorns on coasts may steal headlines but strong VC activity outside traditional hubs

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

6

64% 65% 66% 67%70%

74%77%

74%79%

74%

36% 35% 34% 33%30%

26%23%

26%21%

26%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CA+NY+MA

Rest of US

53% 54% 54% 54% 54% 54% 54% 54% 55%53%

47% 46% 46% 46% 46% 46% 46% 46% 45%47%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

US VC Investment in CA+NY+MA vs. Rest of US ($B)

US VC Investment in CA+NY+MA vs. Rest of US (# of deals)

What’s Happening In Texas

12

Texas ranks 5th in VC $ & 4th by VC deal count in US

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

46%

49%

49%

47% 54

%

53%

56%

50% 60

%

47%

6%

7% 7% 9%

9% 12% 12

%

13%

11%

20%12

% 9% 11%

11% 7% 10

% 9%

11%

9%

8%

4.7% 5.4% 4.9% 6.1% 3.6%3.0%

2.4%2.6%

2.2%2.7%

28%

27%

25%

24%

23%

20%

18%

21% 17

%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rest of US

Washington

Texas

Massachusetts

New York

California

38%

35%

36%

36%

35%

36%

35%

36%

36%

36%

34%

8%

9% 10%

11%

11%

12%

12%

12%

12%

12%

12%

9% 9% 8% 7% 7% 6% 7% 7% 7% 7%

7%

5.4% 5.3% 5.1% 5.1% 5.8% 5.2% 5.4% 5.7% 5.0% 4.9% 5.2%

37%

38%

38%

38%

37%

38%

37%

37%

37%

37%

38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

US VC Investment by State ($B) US VC Investment by State (# of deals)

13

TX VC $ hit record high in 2019, uptick in VC deal count after 3 years of decline

Texas VC Investment Activity

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

$1.3

$1.5

$2.5

$2.0

$2.9

$2.6

$2.5

$1.9

$2.3

$3.1

$3.7

243290

344407

541 559593

544516 520

554

0

100

200

300

400

500

600

700

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Deal value ($B) Deal count

14

IT, Healthcare & B2C startups lead TX VC activity

Texas VC Investment by Sector (2015-2019)

Source: PitchBook-NVCA Venture Monitor, data as of 12/31/19

43%

21%

15%

14% 3%3%

1% IT40%

Healthcare19%

B2C19%

B2B16%

Financial Services

3%

Energy3%

Materials & Resources

1%

% of deal count

% of capital

invested

Largest Industry Groups by VC $ in Texas (2015-2019)

Top 2019 Investment in Group

Group $ Rank Industry Group Sector $M

# of deals Company Code City

Size ($m)

1 Software IT $4,848 1,003 SparkCognition Database Software

Austin $100

2 Pharma & Biotech Healthcare $1,242 151 Peloton Therapeutics

Pharma Dallas $150

3 Commercial Services

B2B $1,181 245 RigUp Media & Info. Services

Austin $300

4 Healthcare Devices & Supplies

Healthcare $656 164 EverlyWell Other Devices & Supplies

Austin $30

5 Consumer Non-Durables

B2C $545 151 Siete Family Foods

Food Products Austin $90

Public Policies Affecting the Startup Ecosystem

Final CFIUS rules include key NVCA wins• Final FIRRMA go into effect February 13;

basic structure remains the same, but helpful detail on key issues

• Big improvement is narrowing of jurisdiction over companies with ‘sensitive personal data’; new from pilot program

• Examples of “material nonpublic technical information” will be useful on direct investment side (e.g. “milestones”) and for managing foreign LPs

• New ‘principal place of business’ definition will help funds organized outside the laws of the U.S.

• Excepted investor concept limited to Canada, U.K., and Australia but could widen

Volcker Rule ReformNVCA proposal to regulators:

• Allow bank investment into venture capital funds• Two regulatory paths to achieve proposal

• Exempt VC• Regulatory parity

Immigration Policy Isn’t Working for Startups• NVCA continues to lead efforts to

create a Startup Visa so the world’s best entrepreneurs can launch high-growth companies in the U.S.

• The bipartisan Startup Act has been introduced again this year and NVCA is spearheading efforts to build support

• NVCA leads support for the International Entrepreneur Rule and sued the Trump Administration when it worked to undo the rule before it got off the ground; fight continues in 2020

VC Definition Modernization (RIA)

• Provide relief for 20% “non-qualifying investment” bucket• Investments into EGCs (including

secondary) = qualifying • Fund of funds investments into other VC

funds = qualifying • Initial Coin Offering = qualifying

• Modify leverage limitations to allow for extended leverage timelines for indebtedness incurred in connection with capital calls

Drug Pricing: Politics Could Motivate Activity• Our role in this debate is educating

policymakers on the crucial role venture capitalists play in new drug discovery

• Political attacks on big drug companies could harm high-growth startups

• Our July 2018 comments shared data on our industry’s impact on medical innovation and stressed sensitivity toward how drug pricing reforms might influence early-stage investment in medicine

Blockchain Technology • VCs make some of the

most critical technology investment decisions in the U.S. economy

• Regulatory certainty for fully functional blockchain networks is critical to determining the full promise of the technology

Techlash (and it’s implication for startups)• Big Tech is on its heels in DC as

tech backlash has become bipartisan headache

• Emboldened by the administration, Republicans no longer giving tech the benefit of the doubt they usually give to businesses

• Not to be outdone by the administration, Democrats stepping up historical criticism of data use and privacy concerns

Tax PolicyAt a time of increasing policy uncertainty, NVCA advocating for tax policy that encourages new company formation

Harmful Tax Proposals:• Taxation of Unrealized Gains &

Capital Gains Policy• Carried Interest

Helpful Tax Proposals:• R&D Credit Payroll Tax Offset• Qualified Small Business Tax

Rules (QSBS)• Startup NOL Safe Harbor (Section

382)

Thank You

Learn more at nvca.org