© weild & co. – proprietary and confidential © 2015 all rights reserved october ’15 the...

© Weild & Co. – Proprietary and Confidential © 2015 All Rights Reserved

OCTOBER

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The Venture Capital Industry and the IPO MarketDavid WeildFounder, Chairman & [email protected] o: 646-722-2758c: 646-472-9603

BSE-HVCA Business Breakfast

mailto:[email protected]


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Brief Introduction to Weild & Co. Lessons learned from the collapse of the U.S. IPO market Factors leading to the JOBS Act Why will the JOBS Act change the landscape for the venture capital

industry? Why “Venture Exchange” is a hot topic in the U.S.?

Agenda (HCVA Breakfast)


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We develop and apply scalable technology platforms and services to increase demand for offerings and aftermarket support. We do this for private placements, IPOs and follow-on offerings. Our clients include public companies and investment banks.

We are in discussions with stock exchanges and independent retail distribution firms to become partners and investors in Weild & Co.

What We Do (Weild & Co.)


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G-20 U.S SEC (Securities & Exchange Commission) U.S Congress OECD (Organization of Economic Cooperation and Development) FESE (Federation of European Securities Exchanges)

The JOBS Act (Enacted April 5, 2012) SEC Tick Size Pilot (Spring 2016) Venture Exchanges (Discussion legislation in U.S. Congress)

Testimony, Public Speaking and Legislative Initiatives


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Source: Weild & Co. and FactSet. US IPOs and US biotech/pharma positions < $1 billion in market cap. Excludes index funds. Bubble size represents relative commission opportunity.

See next page

Buyers of Small IPOs vs Holders of Small Biotech/Pharma:Top 100 Institutions vs Long Tail (Note: Bubble Size = Commission Size)

Commissions and tick sizes are so compressed in the U.S. that institutional sales and trading no longer reach most of the relevant institutional investors.


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Source: Weild & Co. and FactSet. US IPOs and US biotech/pharma positions < $1 billion in market cap. Excludes index funds. Bubble size represents relative commission opportunity.

Buyers of Small IPOs vs Holders of Small Biotech/Pharma:Top 100 Institutions vs Long Tail (Note: Bubble Size = Commission Size)

Weild & Co. is using data science and marketing technology to enable Corporations and Investment Banks to reach all qualified institutional investors.


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LESSONS LEARNED FROM THE COLLAPSE OF THE US IPO MARKET

Topic 1


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Two major lessons:

1) Regulatory burden (cost) must be tailored to the size of the company.2) The business of supporting stocks must be profitable for the dealers.

The collapse in the IPO market was due to a collapse in economic incentives to support stocks. Low tick size electronic trading replaced high tick size quoted markets.


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The business of supporting SME stocks was made unprofitable (economic incentives) and so: Dealers cut institutional sales coverage Dealers converted retail sales model from securities brokerage to

fund placement Dealers cut equity research coverage that supported SMEs The number of active SME investment banks collapsed

81%: 162 bookrunners of small IPOs (1994) 31 bookrunners of small IPOs (2014)

The collapse in the IPO market was due to a collapse in economic incentives to support stocks. Low tick size electronic trading replaced high tick size quoted markets.


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FACTORS LEADING TO THE JOBS ACT

Topic 2


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’15We helped the U.S. Congress understand that the sudden collapse in small IPOs took place with the shift to low-cost electronic markets – BEFORE Sarbanes Oxley

Source: Weild & Co. and Dealogic. Corporate IPOs only, excluding funds, REITs, SPACs and LPs


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’15While many pundits claimed the loss of the SME market was “Cyclical” – after several Bull markets and no recovery, it became clear that Weild & Kim were right.



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’15The U.S. Congress became very disturbed by the loss in the number of listed companies. Weild & Kim documented this and showed how much ground we had lost to China.

Source: Weild & Co., World Federation of Exchanges, NYSE and NASDAQ. Excludes ETFs.

We should have over 13,000 listed companies in the US


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Source: Weild Testimony in front of the US House of Representatives, Subcommittee on Capital Markets, May 13, 2015; US Bureau of Labor Statistics

We then linked the loss of the SME IPO market to a “loss” (opportunity cost) of more than 10 million jobs. This caught the attention of both Democrats and Republicans.


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Source: Weild Testimony in front of the US House of Representatives, Subcommittee on Capital Markets, May 13, 2015; US Bureau of Labor Statistics

Interestingly, U.S. Labor Participation Rates stalled in 1998 with the dawn of low-cost electronic markets.


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WHY ‘VENTURE EXCHANGE’ IS A HOT TOPIC IN THE UNITED STATES?

Topic 4


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’15The JOBS Act has helped the SME IPO market recover modestly. There is still an enormous gap and Congress has recognized that gap.



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Congress needs to focus on #2:

1) Regulatory burden (cost) must be tailored to the size of the company.2) The business of supporting stocks must be profitable for the

dealers. - This would be the focus of “Venture Exchanges”

The JOBS Act focused primarily #1 (Regulatory burden)Venture Exchanges is focused on market quality (trading) for SMEs (#2).


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’15“The “Main Street Growth Act,” which would establish a new class of stock exchanges catering to the needs of small cap companies, has the potential, with some modifications, to get this country back in business. It has the potential to go down as one of the most important Acts to come out of this, or any, Congress by creating essential infrastructure in support of U.S. economic growth. It has the potential to bring back American entrepreneurial swagger and to reignite the American Dream. It has the potential to create jobs on a scale that will improve labor participation rates and hourly wages and help lift many middle class and lower income people to reach their aspirations of financial well-being.” “When corporations access capital they hire people. Those people spend money in the economy on everything from lawyers and accountants to construction and restaurant workers - a “multiplier effect” is created. The benefits become widespread.”

David Weild; Testimony in US Congress, May 13, 2015

Venture Exchanges are focused on improving the aftermarket (post offering) profitability of cash equities in order to attract needed aftermarket support for SMEs.


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WHY WILL THE JOBS ACT CHANGE THE LANDSCAPE FOR THE VENTURE CAPITAL INDUSTRY?

Topic 3


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First change: There will be more flow of start-ups and early stage companies (but most will not be venture appropriate)

- Crowdfunding and Reg. A+- Start-ups declined from 15% of all companies in 1978 to 8% in 2012

(per the economist Robert Litan)- 506(C) allows general solicitation in the marketing of funds (including

venture funds) to accredited investors.

More start-up activity may create more opportunity for professional venture capitalists. It may also create competition.


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Second Change: Lower cost IPOs translates to higher earnings and higher IPO valuations.

- Confidential filings (risk mitigation)- Testing-the-waters (pre-marketing)- Delayed compliance with Sarbanes Oxley (lower cost and complexity)- Reg. A+ (lower disclosure to lower ongoing cost)

Better IPO markets lead to better venture capital returns


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IPOs help drive VC returns

“…A healthy IPO environment allows investors to sell stakes in companies, while an unhealthy environment can force fund managers to hold onto companies, which could lead to further financings and a deterioration of returns due to the passage of time.”

Source: Cambridge Associates, http://www.cambridgeassociates.com/wp-content/uploads/2014/02/CA-PE-and-VC-Benchmarks-Overview-Definitions-and-FAQs.pdf

In the words of “Ray Rothrock” – Partner of Ventrock and former NVCA Chair, “It takes and IPO market to keep the M&A market honest.”

Third Change: Better IPO markets boost returns

http://www.cambridgeassociates.com/wp-content/uploads/2014/02/CA-PE-and-VC-Benchmarks-Overview-Definitions-and-FAQs.pdf




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Improved IPO markets may stave off a cut in asset allocation to venture capitalists!

“The ongoing poor performance of venture capital firms should be an obvious problem to institutional investors…long illiquidity (minimum 10 years) of investing in private equities [demands a].. minimally viable venture rate of return [that] is 300-500 basis points of outperformance above public markets, a level of returns that investors haven’t consistently seen since the late 1990s...”

Source: Harvard Business Review, “Venture Capitalists Paid Well to Lose Money” by Diane Mulcahy, August 5, 2014.

Fourth Change: Maintain capital inflows into VC funds.


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APPENDIX

David WeildChairman & CEOFormer Vice Chairman of The NASDAQ Stock [email protected] o: 646-722-2758c: 646-472-9603

mailto:[email protected]


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DAVID WEILD IV, CHAIRMAN AND CHIEF EXECUTIVE OFFICER

David Weild is Founder, Chairman and CEO of Weild & Co. He is a noted expert in capital markets who has testified in Congress for the House Subcommittee on Capital Markets and Government Sponsored Enterprises, the SEC, spoken at the G-20, FESE and addressed the 34 member nations and the European Commission for the Organization of Economic Co-operation and Development (OECD). He is regarded by many as the ‘Father’ of the JOBS Act for studies that he co-authored with Edward Kim that were the first to identify and characterize the long-term structural decline in the IPO and listed companies markets.

Mr. Weild was formerly Vice Chairman of The NASDAQ Stock Market in charge of the Corporate Client Division with line responsibility for NASDAQ’s 4,000 listed companies. Mr. Weild also headed equity capital markets and corporate finance at a top ten underwriter of IPOs and follow-on equity offerings. During the course of his career he worked on over 1,000 of these transactions.

Mr. Weild holds an MBA from the Stern School of Business and a BA from Wesleyan University. He has studied on exchange at The Sorbonne, Ecole des Haute Etudes Commerciales and The Stockholm School of Economics. Mr. Weild is a former Treasurer of The Bond Club of New York. He currently holds FINRA Series 7, 24, 63, 79, and 99 licenses.


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STUDIES (FIND THEM BY ON THE INTERNET BY SEARCHING ON GOOGLE)

The U.S. Need for Venture Exchanges (2015) by Weild & Kim (Weild & Co.)

Making Stock Markets Work To Support Economic Growth (2013) by Weild, Kim & Newport (OECD)

The Trouble with Small Tick Sizes (2012) by Weild, Kim & Newport

Market Structure is Causing the IPO Crisis – and More (2010) by Weild & Kim (Grant Thornton)

Market Structure is Causing the IPO Crisis (2010) by Weild & Kim (Grant Thornton)

A Wake-up Call for America (2009) by Weild & Kim (Grant Thornton)

Why are IPOs in the ICU? (2008) by Weild & Kim (Grant Thornton)

© weild & co. – proprietary and confidential © 2015 all rights reserved october ’15 the...

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