ohio venture association the quiet recovery – the regional core competencies of our expanding...

Ohio Venture Association

The Quiet Recovery – the Regional Core Competencies of Our

Expanding Venture Community

September 12, 2008

Mark G. HeesenPresident

Venture Capital –

Barely a macroeconomics rounding error in the world of US finance….

US Venture Capital Investment in Perspective

US GDP $12.5 trillion annually Hedge fund intake $1.5 trillion over last 3 years

estimated Buyout equity intake $168 billion in 2007 Mutual fund intake $92 billion in 2007 Venture capital intake $37 billion in 2007

Venture capital fundraising & investment Is 0.3% of total GDP

Source: BLS website, Investment Company Institute, Thomson Reuters, NVCA

Global Insight Study In 2006, venture backed companies:

Provided 10.4 million US jobs Had sales of $2.3 trillion

Represents 17.6% of GDP Still dominated venture-created sectors

56% of biotech revenue 78% of computer and peripherals revenue 94% of computer and peripherals jobs 88% of software sector jobs

Outgrew the economy 2003-2006 in every sector

Source: Venture Impact 2006 by Global Insight

Venture Capital Investment is Productive ...

For VC every dollar invested in 1970-2001, there was $7.90 in US revenue during 2006

For every $28,463 of venture capital invested in 1970-2001, there was one job in the year 2006

Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on 2006 jobs and revenues. If investment through 2006 ($421B) is used, the ratios would be $5.55 and $40,364 respectively

Source: Venture Impact 2006 by Global Insight

Fundraising & Resources

At Year End

# Venture Firms

Capital Under Mgt

1970 28 $1B 1980 92 $4B 1990 393 $28B

2000 883 $225B 2006 855 $280B 2007 741 $258B

The Number of US VC Firms Has Peaked .. Thankfully

Source: 2008 NVCA Yearbook, prepared by Thomson Reuters, figure 1.04

VC Fundraising Was Strong Thru 2000 - Recent Increase Way Below Bubble Levels

0.0

20.0

40.0

60.0

80.0

100.0

120.0

$B Gross 7.8 10.1 11.6 18.1 30.6 58.2 106.6 38.0 3.8 10.6 19.1 28.6 31.8 36.8 16.2

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

Source: Thomson Reuters/NVCADoes not include Corporate Venture groups.

Investment Marches On -Rumors that the Venture Industry has stopped

investing are greatly exaggerated

VC Investment Peaked in 2000; Recently 20-23% of Peak; Recent Steady Increases

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illi

on

In

ves

ted

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1H

08

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters

$0

$5

$10

Total VC $B 5.1 6.2 4.8 5.7 5.1 6.3 5.9 5.8 6.4 7.0 6.8 6.3 7.5 7.4 7.8 8.1 7.4 7.4

1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08

Most Recent Quarters Have Been Consistent – What is the “Right” Level?Some Recent Growth


In 1H 2008, Life Sciences drew 28% of Funding but Medical Devices comprises an ever-growing proportion

Biotech15%

HC Services

1%

Other 12 sectors

72%

Med Devices

12%


0

500

1000

1500

2000

2500

3000

0

50

100

150

200

250

$M 107 203 563 365 391 260 437 524 1,418 2,587 1,754

# Deals 36 37 45 59 65 56 75 86 135 228 125

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

Clean Technology grows significantly:In First Half 2008, $1.8B in 125 Deals


0

5

10

15

$M/Deal 3.0 5.5 12.5 6.2 6.0 4.6 5.8 6.1 10.5 11.3 14.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

Average Clean Tech Deal Size is Increasing


Number of First Time Fundings (New Projects) is At Post-Bubble High!

-

500

1,000

1,500

2,000

2,500

3,000

3,500

First Fundings 1,142 1,287 1,409 2,439 3,369 1,213 837 752 920 1,015 1,180 1,289 617

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08


The Buckeye State

Stats and Sectors …

0

200

400

600

800

1000

1200

0

10

20

30

40

50

60

70

80

90

$M Invested 309 511 977 234 268 179 68 134 63 182 130

# Deals 63 52 78 43 49 26 33 36 33 49 24

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

Ohio Tracks Below National Trends(National: 1/3 of peak, now at 1998 levels)


Ohio Sector SplitsMedical Devices Lead the Way!

(Most recent 8 quarters)

USSW18%

Med Dev13%

Ind/Energ

11%

Telecom7%

Semi7%

Other27%

Bio17%


OhioMed Dev

26%

Ind/Energ

15%

Telecom13%

Bio13%

Elec /Instr

3%

Other8%

SW22%

The Exit Scene - the importance of acquisitions has become clear over the past several years

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

Off

er $

B

0

50

100

150

200

250

300

Nu

mb

er o

f IP

Os

IPO Levels Were Good in 2004 and Okay in 2007; Awful Now

Source: Thomson Reuters/National Venture Capital Association

0

100

200

300

# IPOs 260 138 78 270 264 41 22 29 93 56 57 86 5 0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1Q08 2Q08

The Most IPOs Were in 1996 & 2000; Then 2004 & 2007 Showed Promise; 2008 is Awful


0

100

200

300

400

Median Val ($M) 182 342 247 322 223 228 255 203 255 346 237

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

2007 Set A Median Valuation Record; The Handful of 2008 IPOs Show Some Strength


IPOs YTD 2008: Bleak!!! Only 5 IPOs in Q1 and 0 in Q2! Last zero IPO quarter was in 1978 … 30 years

ago! IPO in context:

Approached 90/quarter in 1999 25/quarter is typical 35/quarter suggested by historical levels

1,000 new port cos/year x 14% historical IPO rate = 140/year


0

20

40

60

80

100

IPOs Done 29 93 56 57 86 5

In Reg on last day 31 57 16 36 60 42

2003 2004 2005 2006 2007 1H08

What’s in the IPO Pipeline?IPOs During Period and Registration Counts at Period End


IPOs Don’t Happen Overnight – and Sometimes Don’t Seem to Happen

Year # IPOs IPOs $BMedian

Val $M

Median Age Yrs

2004 93 11.01 254.90 6.75

2005 56 4.46 203.35 6.13

2006 57 5.12 255.26 8.20

2007 86 10.33 346.01 8.65

1H08 5 0.28 236.99 8.56Source: Thomson Reuters/National Venture Capital Association

0

100

200

300

400

# VB Acq 164 209 239 317 353 318 290 339 350 368 355 120

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

VB Acquisition Counts had been Steady; Low in 2008


$0

$20

$40

$60

$80

Acq $B 7 9 38 68 17 8 8 15 30 19 28 6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08

M&A Proceeds Vary Greatly As the Mix between “Good” Exits and Fire Sales Shift; Now low


Venture Exit Counts- IPOs and M&A by Year - 2008 is Dismal!

0

100

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300

400

500

600

700

Year

Nu

mb

er o

f Is

sues

M&AIPO

M&A 17 76 74 100 97 116 164 209 240 317 353 318 290 350 350 368 355 120

IPO 156 181 220 166 202 270 136 77 260 264 41 24 29 93 56 57 86 5

91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '071H08


Public Policy

Big Wins and Bigger Challenges

No one has repealed the business cycle or the nature of failure …

Key US VC building blocks ... Capital formation

Prudent man rule – enabled pension investment LP laws Capital gains tax reduction

Empowered entrepreneurs Capital gains tax reductions Stock options/team building tools Reasonable bankruptcy laws

Protect companies – IP laws Abundant customers willing to do business with SMEs Exit markets – the NASDAQ Face-to-face investing/proximity Cultural acceptance

Still Private35%

Known Failed18%

Public or In Reg14%

Acquired33%

For First Fundings From 1991 to 2000, Approximately 33% Were Acquired and 14% Went Public[11,686 Companies Total]


Mark G. Heesen

President

ohio venture association the quiet recovery – the regional core competencies of our expanding...

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