Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20031
EVC Club:
State of the VC Industry
10/29/03
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20032
Am
ou
nt
Investe
d
($B
)
Nu
mb
er o
f Deals
Source: VentureOne/Ernst & Young
$7.5
$20.3
$35.4
$93.9
$49.2
$17.8$13.1$9.9
19012198
2520
4502
6165
3112
2156
866
$0
$25
$50
$75
$100
1996 1997 1998 1999 2000 2001 2002 1H03
0
1,000
2,000
3,000
4,000
5,000
6,000
Amount Invested ($B) Number of Deals
Underlying data available in VentureSource
2003 Investment Continues to Fall Deal Flow and Equity into Venture-Backed Companies (annual)
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20033
Deal Flow Continues To StabilizeDeal Flow by Round Class
0%
20%
40%
60%
80%
100%
2Q003Q004Q001Q012Q013Q014Q011Q022Q023Q024Q021Q032Q03
Later Round
Second Round
First Round
Seed Round
% o
f D
eals
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20034
80% of Dollars Directed at 2nd & Later Rounds
Investment by Round Class
0%
20%
40%
60%
80%
100%
1996 1997 1998 1999 2000 2001 2002 1H03
Later Round
Second Round
First Round
Seed Round
% o
f A
mou
nt
Investe
d
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20035
Restarts Gain in Popularity
Investment by Round Class
0%
20%
40%
60%
80%
100%
1997 1998 1999 2000 2001 2002 1H03
Restart Rounds
Later Round
Second Round
First Round
Seed Round
% o
f A
mou
nt
Investe
d
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20036
Deal Sizes Regress to Overall Median Median Amount Invested by Round Class
$6.7
$6.2
$4.3
$0.8$0
$5
$10
$15
$20
$25
2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03
Later Round Second Round First Round Seed Round
Med
ian
Am
ou
nt
Investe
d
($M
)
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20037
Healthcare Rebounds to 2Q’02 Level
Equity Investment by Industry Sector
0%
20%
40%
60%
80%
100%
2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03
Products &Services
InformationTechnology
Healthcare
% o
f In
vestm
en
t
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20038
Within Healthcare, Allocations Are Consistent
Healthcare Investment by Sector
0%
20%
40%
60%
80%
100%
1996 1997 1998 1999 2000 2001 2002 1H03
Medical IS
Medical Devices
Healthcare Services
Biopharmaceuticals
% o
f In
vestm
en
t
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 20039
Software & Communications Are the Bulk of IT
IT Investment by Sector
0%
20%
40%
60%
80%
100%
2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03
Software
Semiconductors
InformationServices
Electronics
Communications
% o
f In
vestm
en
t
Source: VentureOne/Ernst & YoungUnderlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200310
U.S. Investment: Internet
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200311
Internet as % of Overall Investment Percentage of Equity Investment in Internet
79%75%
69%66%
58%64%
56% 56% 57%54%
44%
85%81%
85%
25%
50%
75%
100%
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03
% o
f In
vestm
en
t
Source: VentureOne/Ernst & Young
Underlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200312
Most Rounds Include Multiple Investors
Number of Investors Per Round
0%
20%
40%
60%
80%
100%
1995 1996 1997 1998 1999 2000 2001 2002 1H03
5+ Investors
4 Investors
3 Investors
2 Investors
1 Investor
Source: VentureOne/Ernst & YoungUnderlying data available in VentureSource
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200313
Valuations: By Development Stage
Median Pre-Money Valuation by Development Stage
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
Mill
ion
US
Dol
lars Startup
Product Development
Shipping Product
Profitable
Restart
1997 1998 1999 2000 2001 2002 1Q03 2Q03
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200314
Valuations: By Investment Round
Median Pre-Money Valuation by Investment Round
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
Mill
ion
US
Dol
lars Seed Round
First Round
Second Round
Later Round
Restart
1997 1998 1999 2000 2001 2002 1Q03 2Q03
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200315
Valuation By Round: Early Stages
Median Pre-Money Valuation by Investment Round
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Mill
ion
US
Dol
lars
Seed Round
First Round
Second Round
1997 1998 1999 2000 2001 2002 1Q03 2Q03
Zell-Lurie Institute for Entrepreneurial Studies
October 27, 200316
Conclusions
•Approaching post-bubble “equilibrium.”
•Still lots of angst among interests.
•“Smart” money – that which includes
“business building” skills in addition to
cash, is more important than ever.
•Not all good businesses need venture
money.