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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
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1989
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1991
1992
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1994
1995
1996
1997
1998
1999
2000
2001
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2003
2004
2005
2006
2007
1H
08
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
$0
$5
$10
Total VC $B 5.1 6.2 4.8 5.7 5.1 6.3 5.9 5.8 6.4 7.0 6.8 6.3 7.5 7.4 7.8 8.1 7.4 7.4
1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08
Most Recent Quarters Have Been Consistent – What is the “Right” Level?Some Recent Growth
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
In 1H 2008, Life Sciences drew 28% of Funding but Medical Devices comprises an ever-growing proportion
Biotech15%
HC Services
1%
Other 12 sectors
72%
Med Devices
12%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
0
500
1000
1500
2000
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3000
0
50
100
150
200
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$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
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
0
5
10
15
$M/Deal 3.0 5.5 12.5 6.2 6.0 4.6 5.8 6.1 10.5 11.3 14.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
Average Clean Tech Deal Size is Increasing
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Number of First Time Fundings (New Projects) is At Post-Bubble High!
-
500
1,000
1,500
2,000
2,500
3,000
3,500
First Fundings 1,142 1,287 1,409 2,439 3,369 1,213 837 752 920 1,015 1,180 1,289 617
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
The Buckeye State
Stats and Sectors …
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1200
0
10
20
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$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)
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Ohio Sector SplitsMedical Devices Lead the Way!
(Most recent 8 quarters)
USSW18%
Med Dev13%
Ind/Energ
11%
Telecom7%
Semi7%
Other27%
Bio17%
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
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
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5
10
15
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25
30
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H08
Off
er $
B
0
50
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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
Source: Thomson Reuters/National Venture Capital Association
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
Source: Thomson Reuters/National Venture Capital Association
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
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
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
Source: Thomson Reuters/National Venture Capital Association
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
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# 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
Source: Thomson Reuters/National Venture Capital Association
$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
Source: Thomson Reuters/National Venture Capital Association
Venture Exit Counts- IPOs and M&A by Year - 2008 is Dismal!
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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
Source: Thomson Reuters/National Venture Capital Association
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]
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Reuters
Mark G. Heesen
President
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