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A Venture Capital Perspective

Gamiel Gran - Partner Sierra Ventures

October 6, 2011

Venture Capitalist Perspective

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Getting Funded – some insights

ENTREPRENEURS(Starting and Building

Companies)

VENTURE CAPITALISTS(Finding and Funding

Entrepreneurial Companies)

The Venture Capital ProcessINSTITUTIONAL INVESTORS

(Limited Partners – e.g. Endowments, Pension Funds)

Venture Capital 101 Stanford University Graduate School of BusinessPeter C. Wendell, Managing Director Sierra Ventures

• Long-term funders of VC firms (10-year contract, funds flow slowly)

• Need out-sized returns (DJIA+5)

• Want access to “best” firms; comp issues

• Can drive cyclicality

• Equity investors (Not lenders); strike deals

• Pick winners and add value; wide variety of outcomes

• Firms often specialize and have multiple funds

• Long-terms funds, but liquidity focused

• VC as change agent; Value add

• Large sorting task; Deal flow

• Defining and focusing the pursuit of an opportunity

• Marshalling resources / maintaining control

• Attempting to create “virtuous cycle of success”

Institutional Investors

INSTITUTIONAL INVESTORS(Limited Partners – e.g.

Endowments, Pension Funds)

• Long-term funders of VC firms (10-year contract, funds flow slowly)

• Need out-sized returns (DJIA+5)• Want access to “best” firms; • Can drive cyclicality

• Asset allocation; Return expectations• L.P. - G.P. contracts; Compensation• Management Fees vs. Carry• History; Long view

VENTURE CAPITALISTS(Finding and Funding

Entrepreneurial Companies)

• Equity investors (Not lenders);

• Pick winners and add value; wide variety of outcomes

• Firms often specialize and have multiple funds

• Long-terms funds, but liquidity focused

• VC as change agent; Value add• Large sorting task; Deal flow• The "pitch" and the "deal" (ownership)• Buyers and Sellers; Liquidity• Perform or perish; Firm focus

Venture Capitalists

ENTREPRENEURS(Starting and Building

Companies)

• Defining and focusing the pursuit of an opportunity

• Marshalling resources / maintaining control

• Attempting to create “virtuous cycle of success”

• Outcomes vary widely, thus creating “inefficient market” for VC’s

• Size of outcome – Aligned Incentives• Shared vision (evolving)• Fit with VC (permanence)• Deals, valuation, and terms

Entrepreneurs

Annual Venture Capital Investments From 1981 - First Half 2011

PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters

8

PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters

Venture Capital InvestmentsBy industry: Q2 2011

Visit www.pwcmoneytree.com for Industry definitions

Industry # 0f Deals

% Change in $ from Q1' 11

Software 254 35%Media and Entertainment

132 27%

Biotechnology 116 46%Medical Devices and Equipment

90 26%

Industrial/Energy 85 -35%IT Services 83 19%Consumer Products and Services

34 248%

Telecommunications

29 -10%

Business Products and Services

24 545%

Semiconductors 24 22%Networking and Equipment

21 -3%

Retailing/Distribution

19 403%

Electronics/Instrumentation

18 -62%

Financial Services 14 -32%

Computers and Peripherals

13 82%

Healthcare Services

8 -17%

Other 2 -56%Total 966 19%

Venture Capital InvestmentsBy region: Q2 2011

9

PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters Q2 2011 Total Investments - $7,516.1 million in 966 deals

Region # of Deals % Change $ from Q1’ 11

Silicon Valley 319 14%

New England 119 56%

NY Metro 98 1%

Midwest 75 -11%LA/Orange County

54 27%

Southeast 45 -20%

DC/Metroplex 44 78%

Texas 38 -6%

Northwest 36 -6%Philadelphia Metro

29 -30%

San Diego 29 25%

Colorado 21 175%

South Central 18 -12%

North Central 17 85%

SouthWest 14 89%

Upstate NY 7 181%Sacramento/N.Cal

2 6%

AK/HI/PR 1 N/A

Total 966 19%

Corporate Acquisitions Successful Exits Create Successful Entrepreneurs

Cash of Top Consolidators

$300+B

Acquirer Target Multiple

20X

15X

15X

6X

Source: Capital IQ

2004 2005 2006 2007 2008 2009 20100

2

4

6

8

10

12

$10.5

$4.5$5.1

$10.3

$0.5$1.6

$7.0

Tota

l am

ount

rais

ed fr

om IP

Os

IPO Market Recovering from Dry Spell

►IPO Market Opened for High Quality Companies►High Revenue Bar►Longer Time

($ Billions)

IPO

*Source: Thompson Reuters & NVCA

Venture Capital Market SummaryMany Positive Signs

Good News

Money Flow is Up: $7.5B invested Q2’11 19% above Q1’11 4% above Q2’10

IPO’s are trending Up: Some big IPO’s, e.g. Linked In

M&A is trending Up: Top 15 public tech firms have

$300B cash E.g. Google bought 48

companies for $2B in 2010

New and Huge Markets Cloud Computing Social Mobile Big Data Analytics: Extra Advertising to Internet/Mobile

just beginning

Not So Good News

• Valuations are on the rise• “social” phase of the digital

revolution (Groupon, Facebook).

• Is this a bubble in the making?

• Capital intensive sectors (Life Sciences, Cleantech) challenges

• due to government policy uncertainties, both at the federal and state levels

• VC fundraising is down

• IPO and M & A markets are still weak by historical standards

• Macro trends – US, Japan, European Recession – Double Dip?

Global Fuel

• China based companies 23% US IPO’s in 2010 vs. 1% in 2009

• 90% kids under 15 live in emerging markets

• Global Internet usage 1.8 trillion min/mo

• Internet Users: China 420m, US 220m

• Cell Phone Users: China 790m, US 270m

• China #1 in car sales

• India population surpass China by 2020

• China the largest PC Market in 2Q11

Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Outlook and Questions

Big Data is at the Center of a New Wave of Opportunity…Insights still difficult

2009

800,000 petabytes

2020

35 zettabytes

as much Data and ContentOver Coming Decade

44x Business leaders frequently make decisions based on information they don’t trust, or don’t have

1 in 3

83%of CIOs cited “Business intelligence and analytics” as part of their visionary plansto enhance competitiveness

Business leaders say they don’t have access to the information they need to do their jobs

1 in 2

of CEOs need to do a better job capturing and understanding information rapidly in order to make swift business decisions

60%

… And Organizations Need Deeper Insights

Of world’s datais unstructured

80%

Big Data – Segments of Opportunity

Spreadsheets/Visualization

Connectors/Integration

Hadoop Distributions

File Storage

Design &Deploy

*Now Hitachi

AnalyticalApplications

ProcessingPlatform

*Now Teradata *Now HP *Now EMC

Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Outlook and Questions

2010 2011 2012 2013 20140

1

2

3

4

5

6

7 Total - Virtualization Software

CLOUD COMPUTING Tectonic Market Shift

MONITORING AND MANAGEMENT

Across Multiple Platforms

Integrate Physical & Virtual

Deployment / Mgmt Software

Cloud Computing – Enterprise Adoption

2010 2011 2012 2013 20140

1

2

3

4

5

6

7Software Infrastructure

Management Software

Hosted Virtual Desktop

CLOUD APPLICATION SOFTWARE

Migrating Legacy Apps

Cloud Enabling New Apps

Ensure App. Availability

DESKTOP VIRTUALIZATION

Integrate Server & Desktop

Application Awareness

Virtual Desktop Management

Virtualization Software – Market Size ($B)

PortfolioInvestment Opportunities

CLOUD PROVIDERS

Public Cloud

Virtualization

Private Cloud

Hybrid Cloud

LargeSMB

ENTERPRISE

Am

ount

($-

Bill

ion)

Source: IDC

Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Outlook and Questions

Mobile: At the tipping point...

Mobile: It’s all about the App

Wireless – Segments of Opportunity

Distribution (App Stores)

Wireless Clouds

Security

Applications

Testing/ Deployment*Now Teradata *Now HP *Now EMC

(in progress)

(via PhoneGap)

(Aptana Studio IDE)

Analytics

Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Outlook and Questions

Social: The new platform for access

Social: Disrupting Traditional MarketsEnterprise... Must evolve to the Social Enterprise

Social: Gamification as the new Engagement Model

NIC

HE

GEN

ERA

L

GLOBALREGIONAL

GLOBAL SOCIAL NETWORKS (~100M USERS)

PortfolioInvestment Opportunities

Social: Disrupting the Internet Landscape

ONLINE AD MARKET DISRUPTION

<5% of Online Ad Market

Social Ad Enabling Software

Social Ad Analytics

2008 2009 2010 2011 20120.0

0.5

1.0

1.5

2.0

2.5

0%

20%

40%

60%

80%

100%

0.3

0.600000000000001

1

1.41.6

Soci

al N

etw

ork

Use

rs (

B)

% of Internet U

sers

WORLD WIDE SOCIAL NETWORK USERS (Billions)

NEXT GENERATION SOCIAL APPS

Social Gaming (~$3.6B)

Social = “Internet” (Social Commerce, Travel, Jobs ...)

Application Analytics

SOCIAL CRM - ENTERPRISE

Social Media Monitoring

Social Customer Support

Collaboration Software

100%

80%

60%

40%

20%

0%

Source: eMarketer and Sierra Ventures

Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies

Agenda

State of Venture Capital – Investment climate, IPO’s from a long term perspective

Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win

Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices

Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption

Social – The New Internet – the social chain as the new dimension across the globe

Sierra Ventures – Our Approach

Outlook and Questions

30

Sierra Ventures – since 1982 - $1.5Billion AUM Investing Strategy – Early Stage, Global, IT Sectors

Growth

Early Stage

Stage

$3 – $8M Initial$8 – $12M Total

Ownership 20%-25%

Investments and ExitsAcross the U.S /

Canada.

Size Geography

(NASD: AUTH)(NASD: FIRE) (MMYT) (MERU)

Some IPO’s&

Acquisitions

Sierra Ventures Deal Flow Thousands of Ideas to a Few Funded

31

►Independent origination►Sub-group evaluation►Partnership decision

0.33% deals reviewed are funded

Sierra CIO Advisory Board Global IT Leaders -- Meet Monthly

Technology Finance

Pharma/Health/Govt.Consumer / Manufacturing / IndustrialRetail / Hospitality

Telco / Media

34

Marc BenioffCEO

Eric SchmidtCEO

Meg Whitman CEO

Charles Phillips Co-President

Joe TucciCEO

Enrique SalemCEO

Tom SiebelCEO

Mark HurdCEO

Sierra CIO SummitEnable Strategic Exchange of Best Practices for CIO Board Members

Five Sierra “CIO Summits” held since 2006 – Each with a Major Keynote

Cloud

BigDataMobile

Social

Sierra Ventures Tracking: The Ripple Effect of Disruptions

PrivateCloud

Software

Mobile App Dev Platform

PredictiveAnalytics

Social Media

Presence

Recent Liquidity Events

● Greenplum purchased by EMC for $400M (closed 8/2010)

● American Fiber Systems purchased by Zayo Group for $115M (closed 9/2010)

● Simplify Media purchased by Google (closed 3/2010)

● MakeMyTrip.com completes $80M IPO (8/2010)

● CarWale purchased by Axel Springer (closed 12/2010)

● Makara purchased by Redhat (closed 11/2010)

● InvenSense files for $100M IPO led by Goldman and Morgan Stanley

Investor Deck Presentation Guidelines

● Company Snapshot [1-2 slides] Simple single sentence overview of the

company Snapshot Data Date of Incorporation Number of Employees Office Locations Total funds raised to Date

● Team [1-2 slides] Founders & Management Board of Directors/Board of Advisors Problem [1 slide] Describe the customer pain Describe how that pain is met today

● Total Addressable Market [1 slide] Calculate or provide third party research on the

TAM (top down and bottoms up) Solution [open] Explain your Company’s value proposition in

order to solve the problem described in the previous “Problem” slide Describe the Product (functionality, features,

architecture, what core IP do you have). Show your Product development roadmap Provide use cases (or customer case studies if

appropriate)

● Product Timing [1 slide] Define recent trends that make your solution

possible Show us the historical evolution of your

category if it is an existing market Business Model [open] Source of Revenue and ASP Distribution channels Customer list and pipeline

● Competition [1-2 slides] List your direct and indirect competition Show where your product physically sits in the

ecosystem Provide detail on the advantages/disadvantages

of your product vs. what is currently available through competitors (matrix view

preferred)

● Financials [1-2 slides] Income Statement, Balance Sheet and Cash

Flow statement and forecast Summary of the Cap table Summarize the current financing round

Steps

● Who to pursue – do your diligence Crunchbase, PEHub, VentureBeat, VC sites, VC FB/Twitter

● Introduction Work your network – Paragraph from your ‘recommender’

● Pre-View Call Likely a phone call – Ask questions – Have examples Know their background Enable possible next steps – “We wont begin fundraising until... “

● First Meeting Investor Deck – Team, Traction, Technology Build your advocate – what’s their outcome goal

● Partner Meeting Mixed Audience – do your homework Predefine an outcome – to move to due diligence calls (have some done already)

● Due Diligence Your contacts .... And those you don’t know. (help make it simple)

● Term Sheet Study the terms early – How competitive is the deal

Due Diligence Effort

● Tab 1 Executive Summary/Business Plan

● Tab 2 Investor Presentation

● Tab 3 Sales & Market Briefing

● Tab 4 Product Information

● Tab 5 Technology Information

● Tab 6 Competitive analysis

● Tab 7 Operations - Engineering Schedule/Manuf process/Quality Metrics

● Tab 8 Financials

● Tab 9 Customer references

● Tab 10 Future product roadmap(go over new products, what’s exciting..)

● Tab 11 Valuation & Exit Analysis

● Tab 12 Management Bios & References

● Tab 13 Cap Tables & Term Sheets

● Tab 14 Patents & Applications (patent review – what’s defendable?)

● Tab 15 Market research, white papers, news articles, etc.

● Tab 16 Misc. emails, etc.

Funding and Rounds

● Funding Expectations: $10M company or $200M+...

● Less is More: Raise what you need – Milestones support valuation

● Preferred = Risk

● Founder: 1-4 (2 equal partners ideal)

● Convertible Debt (Bridge Loan) at 20% discount to next round

● Venture Debt: too early must be collateralized, venture debt generally 20-30% of last round, Servicing the debt with Capital OK, warrants nominal, Prime+1.5pts

● Employee Option Pool: 20%

● CxO Hires: CEO 5-7%, COO 2-3%, VPS/VPE/VPM ~1½%

# of shares Price/share Amount raised Pre-money Post MoneyInvestor

Ownership % Range Founder % post-round

Founding 950,000 - - - - 100.0%Angel rnd 50,000 1.00$ 50,000$ 950,000$ $1,000,000 5.00% expect 4-15% 95.0%Series A 333,333 6.00$ 2,000,000$ 6,000,000$ $8,000,000 25.00% expect 20-30% 71.3%Series B 711,111 11.25$ 8,000,000$ 15,000,000$ $23,000,000 34.78% expect 20-30% 46.5%Debt, 2% 3,556 11.25$ 2,000,000$ 23,000,000$ $25,000,000 0.17% nominal 46.4%