state of the venture capital industry - mark g. heesen

The Florida Venture Forum, the Gulf Coast Venture Forum and

the EDC of Sarasotaare proud to present

MARK G. HEESEN State of the Venture Capital Industry

October 14, 2009Sarasota, Florida

Thank you to our sponsors

State of the Venture Capital IndustryOctober 2009

Mark G. HeesenPresident

Global Insight Study In 2008, venture backed companies:

Provided 12.05 million US jobs Had sales of $2.3 trillion

Represents 20.5% of GDP Still dominated venture-created sectors

74% of telecommunications jobs 81% of software jobs 55% of semiconductor revenue 67% of electronics/instrumentation revenue

Source: Venture Impact 2009 by Global Insight

Fundraising & Resources

Capital under mgt & # firms peaked; Industry capital now $197B

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# Firms Cap Und Mgt $BSource: NVCA 2008 Yearbook prepared by Thomson Reuters

VC Fundraising Matches Investment - Late 2008’s Denominator Effect Killed Fundraising (Less than $2B in 3Q 2009

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$B Gross 7.8 10.1 11.6 18.1 30.6 58.2 106. 38.0 3.8 10.6 19.2 29.0 31.9 36.1 28.6 8.4

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 3Q09

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

Investment Marches On -Rumors that the Venture Industry

has stopped investing are exaggerated

VC Investment Peaked in 2000; 2008 Was Down 8%; 1H09 was $6.8B

$0

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

$103B

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Total VC $B 5.1 6.4 5.9 5.8 6.4 7.1 6.7 6.4 7.5 7.4 7.8 8.0 7.7 7.6 7.2 5.7 3.2 3.7

1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

Investment Started Slowing Considerably in 3Q08 from a 5-year

Steady Slow Growth

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

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$M 107 203 563 400 391 271 438 523 1,458 2,656 4,023 513

# Deals 36 37 45 61 65 59 76 92 144 239 286 83

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1H09

Clean Technology investment grows significantly2008: $4B in 286 Deals


Despite the recession Q4, VCs funded 1,202 new companies in 2008; Very slow YTD ….

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First Fundings 1,143 1,287 1,415 2,438 3,364 1,217 833 764 925 1,028 1,219 1,316 1,202 290

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1H09


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Florida is currently ranked 17th for overall venture capital investment.

Venture Capital Investment In Billions2008 State Ranking

Rank State VC $1 California $14.12 Massachusetts 3.03 New York 1.34 Texas 1.35 Washington .936 Colorado .857 New Jersey .708 Pennsylvania .689 Minnesota .5016 Michigan .24317 Florida .23518 Arizona .208

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Venture-backed companies are a critical engine of economic growth for Florida.

From 1970 – 2008 venture capitalists invested $10.2 billion in 639 companies in FL.

Public companies headquartered in FL that were once venture-backed account for 242,074 jobs and $76 billion in revenue.*

FL ranks #11 in jobs and #9 in revenues at venture-backed companies headquartered in the state.*

One U.S. job was created for every $42,135 of venture capital dollars invested in the state of Florida.

* According to 2009 Global Insight study

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Annual average venture capital investment in Florida from 2003-2008 was $400 million.

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Companies

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Florida venture-backed companies receiving top funding in 2008 represent a broad range of industries.

Highwinds Network Group, Inc

Develops infrastructure software and provides wholesale hosting services

Lehigh Technologies, LLC Manufactures and distributes industrial polymersSkyCross, Inc. Provides antenna-centric radio-frequency (RF) solutionsPentaho Corporation Develops Open Source Business Intelligence (BI) softwarePersystent Technology Corporation Provides software for the automatic repair and security of PCs

Renal CarePartners, Inc. Operates as a specialized kidney dialysis services companyBFS Companies, Inc. Provides working capital advances to small businessesLifestyle Family Fitness Operates a fitness club chain with nine locations in Florida

LOC-AID Technologies, Inc. Develops turnkey systems and customized wireless mobile data solutions

Anansi Networks, Inc. Provides wireless communication system technologies

Top venture-funded FL companies - 2008

The highest venture funded industries in Florida are software, telecom, and energy.

39%

17%13%

5%

4% 11%

11%

Software EnergyTelecommunications Media & EntertainmentHealthcare Services Financial ServicesOther

VC Investment in FL - Industry Breakout - 2008

MA30%

CA8%FL

7%NY7%

NJ4%

Other44%

93% of venture capital investment intoFL companies comes from out of state.

In 2008, venture capital dollars invested in FL companies came from venture firms headquartered in:

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

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Offer ($ B) 8.2 11.5 4.8 3.8 20.9 25.6 3.5 2.1 2.0 11.4 4.5 5.1 10.3 0.5 1.3Count 205 272 138 78 270 265 41 22 29 94 57 57 86 6 8

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9M09

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

Source: Thomson Reuters/National Venture Capital Association

020406080

IPOs Done 12 31 5 0 1 0 0 5 3 1In Reg on last day 72 60 37 42 38 28 26 10 18

3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09TD

What’s in the IPO Pipeline?Dismal Short Term…Don’t confuse “uptick” with “recovery”…


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# VB Acq 164 209 239 317 353 319 284 346 350 369 372 342 189

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9M09

VB Acquisition Counts Were Steady; Down Now – Quality Varies


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Acq $B 7 9 38 68 17 8 7 16 17 19 28 14 41997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9M09

M&A Exits Aren’t Providing Much Liquidity Either


Those Few Acquisitions Which Do Happen Are Not Great

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>10x TVI 1 2 24x-10x TVI 2 3 61x-4x TVI 3 2 2< TVI 8 5 11

1Q09 2Q09 3Q09

Source: Thomson Reuters/National Venture Capital Association – Undisclosed txns are prorated

Venture Exit Counts- IPOs and M&A by Year

0100200300400500600700

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M&AIPO

M&A 74 100 97 116 164 209 240 317 353 319 284 346 351 370 360 335 189IPO 220 166 202 270 136 77 260 264 41 24 29 93 56 57 86 6 8

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9M09


Performance

Venture Capital Returns: Still Around 20% over the long haul net to the LPs

Through Q2 2009Except * through Q1 2009 Source: Cambridge Associates U.S Venture Capital Index®, the

performance benchmark of the National Venture Capital Association

Period Ending 1 Qtr 1 Year 10 Year 20 Year06/30/2009 (Current) 0.2% -17.1% 14.3% 22.7%03/31/2009 (Last Qtr) -2.9% -17.5% 26.2% 22.5%

12/31/2008 (Prior) -12.5% -16.5% 35.0% 22.3%DJIA 11.0% -23.0% -2.6% 8.8%*

NASDAQ Composite 20.0% -20.0% -3.7% 6.8%*

S&P 500 15.2% -26.2% -3.9% 7.4%*

Public Policy andThe Venture Industry

Some Wins; Many Challenges …

American competitiveness ... More people will graduate in the US [in 2006]

with sports-exercise degrees than electrical engineering degrees.

So if we want to be the massage capital of

the world, we’re well on our way … Jeffrey Immelt CEO of GE in a 2006 Globalist interview

Key US VC building blocks ...Our Ecosystem!

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

“Buy low… sell high” is easier if you really buy low!

CompanyTotal Venture

Investment $M

Recent Market Cap/ Acq Price $M

[1/2009]

Cisco 3 89,760eBay 7 16,460Amazon.com 8 20,550Apple 9 71,450YouTube 12 1,650Google 40 90,610JetBlue 173 1,710WebVan 441 0

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

www.nvca.org

state of the venture capital industry - mark g. heesen

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