idcee 2012: cee on the global vc map - drew guff (managing director & founding principal @...

A Presentation to Lorem Ipsum Plc May 2007

Emerging Markets on the Global VC Map

IDCEE 2012

October 18, 2012

Confidential

Siguler Guff & CompanyOctober 2012

+ Siguler Guff BRIC Opportunities Funds: Siguler Guff manages one of the largest pools of fund-of-funds assets investing in the large and dynamic emerging economies of Brazil, Russia, India and China

02

Siguler Guff Investments in Technology

+ Siguler Guff co-managed a series of Venture Lending & Leasing (VLL) funds in Silicon Valley alongside Western Technology Investments+ Transactions in the VLL funds include:

Western Technology manages the day-to-day operations of the VLL funds1Russia funds are managed by Russia Partners, an affiliate of Siguler Guff & Company

China India Brazil Russia1

http://www.google.com/

http://www.youku.com/

http://www.360.cn/


+ There has been a huge paradigm shift in VC over the last 12 years

+ 1990s+ Average net multiples to LPs were approximately 3-4x invested capital + Average life of a portfolio companies was 3.4 years+ Average fund sizes below $100 million+ Portfolio companies went public earlier and while they were “smaller”+ The IPO market was very robust

+ 2000s+ Returns have been low, and even negative for the last 10-15 years

+ Average fund multiples are only 1.2x+ Since 2000, only 6% of VC funds have had IRRs in excess of 20%, as

competition for deals have driven up entry multiples

+ Average life of portfolio companies is eight years+ With the average term of a VC fund at 10 years, there is a huge timing

mismatch+ VC fund terms must now be at least 15 years to match holding period of

investments

Development of Global Venture Capital Industry

03Source: Preqin

Siguler Guff & CompanyOctober 2012 04

Global VC Returns Have Steadily Deteriorated Since the Late 1990s

Source: Cambridge Associates

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

-10%

0%

10%

20%

30%

40%

50%

60%

TVPI Arithmetic Mean Net IRR Arithmetic Mean


Fewer Funds Raising More Capital in the U.S. Since 2005

05

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$0

$2

$4

$6

$8

$10

$12

0

200

400

600

800

1,000

1,200

Avg fund size ($ M) Firms actively investing (U.S.)

Source: NVCA


Wealth Creation in Tech Companies is Extremely Concentrated

06

“~2% of companies accounted for ~100% of net wealth creation of 1,720 Tech IPOs in USA (1980-2002)”

- The Technology IPO Yearbook: 9th Edition – 23 Years of Tech Investing, Morgan Stanley

“97% percent of the VC returns in any given year come from 15 investments, among the thousands that receive funding”

- Andreessen Horowitz


Because Only A Few Can Access the “Magic 15” Deals

07

All VC Firms All VC, Minus 5 Firms All VC, Minus 10 Firms0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

38.2%

16.1%

9.6%

U.S. Venture Capital 15-Year Returns*

Source: Cambridge Associates LLC Non-Marketable Alternative Assets Database*Returns as of March 31, 2010. Returns are end-to-end pooled means to LPs, net of management fees, expenses, and carried interestThe end-to-end performance calculation is similar to the IRR, however it is measuring the return between two points in time. The calculation takes into account the beginning NAV as the initial investment. The subsequent quarterly cash flows and the ending NAV for the specified time period (i.e. one quarter, one year, etc.) are utilized in the same fashion as the IRR calculation. All returns greater than one year are annualized.


VC is Going Global in Search of Returns

08Source: NVCA Survey, 2011

Already invest outside the U.S.

Plan to increase international investment

Plan to maintain current level of int'l investment

No plans to invest outside the U.S.

Plan to decrease international investment

0% 10% 20% 30% 40% 50% 60%


Internet Penetration: Emerging Markets Drive Growth

Russia61 million users

+17% Y/Y43% Penetration

China513 million users


India121 million users


Brazil76 million users


U.S.245 million users

+0.6% Y/Y78% Penetration

+ 44% of all global Internet users are located in the U.S., Russia, Brazil, India and China

Source: Internet user stats (2011 figures) from International Telecommunications Union and Morgan Stanley research


EMs Account for 9 of the 10 Fastest-Growing Internet Markets

010

Rank Country

2008-2011 Internet User

Adds2011 Internet

Users YoY growthPopulation Penetration

1 China 215 513 19% 36%

2 India 69 121 18% 8%

3 Indonesia 37 55 22% 23%

4 Philippines 28 34 44% 35%

5 Nigeria 21 45 - 28%

6 Mexico 19 42 19% 37%

7 Russia 16 61 17% 43%

8 USA 15 245 1% 78%

9 Iran 14 37 - 48%

10 Turkey 11 36 26% 49%

Top 10 445 1,189.0 12% 32%

World 663 2250 8% 32%

Source: ComScore


2007 2008 2009 2010 20110%

20%

40%

60%

80%

100%

120%

7.0%

22.0% 29.0% 32.0%

43.0%

8.0%

12.0%

18.0% 14.0%

7.0%

34.0%

26.0%

24.0% 15.0%

18.0% 25.0% 8.0%

7.0%

5.0% 5.0%

7.0% 7.0%

10.0% 24.0%

22.0%

China IndiaEmerging Asia ex-China and India* CEE & CISLatAm & Caribbean MENASub-Saharan Africa Multi-region

China – Primary Destination for International PE&VC

011Source: EMPEA; Funds raised do not include global funds with allocations to China

EM PE Fundraising by Region (% of total capital raised)


China – Scale and Strong Domestic Consumption Story

012

Sources: Goldman Sachs, Datastream, Siguler Guff Analysis

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

BRICs Consumption as Proportion of U.S. Consumption

Russia India China Brazil

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Brazil Russia India China BRICs G7

BRICs Population Entering the Middle Class Income Bracket by 2020 (Millions)

2000 2010 2020


India – Soft Fundraising Environment

013

Source: EMPEA

2004 2005 2006 2007 2008 2009 2010 2011$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Funds Raised and Invested ($M)

Funds Raised Funds Invested


1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

1H 2

012

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800Value raised ($ M) Number of New Funds

014

CEE is Becoming a Destination for VC Investment

+ Central and Eastern Europe has become a destination for VC investing in the past ten years, after being largely ignored in the 1990s

+ 97 CEE companies received venture funding totaling €94 million in 2011, driven by start-up investments (+85% YoY in value, +76% by number of companies)

+ Ukraine, Poland, Hungary, the Czech Republic and Romania together accounted for 92% of total investment value and 70% of total number of companies financed in CEE in 2011

Source: EVCA, Preqin, Siguler Guff estimates

0

12

4 4 8

6

5

310

4

94

11

6

4

7

8 2

#

CEE-focused VC Fundraising


Venture Funds Have Been the Most Successful Fundraisers in CEE

015

2010 2011

Amount No. of Funds Amount No. of Funds

Early stage € 82,020 4 € 59,730 4

Later stage venture € 8,420 1 € 10,120 1

Balanced € 46,030 2 € 124,840 3

Total venture € 136,470 7 € 194,690 8

Growth € 20,000 1 € 51,300 1

Buyout € - 0 € - 0

Mezzanine € - 0 € - 0

Generalist € - 0 € - 0 Independent Funds

Raised € 156,470 8 € 245,990 9

Source: EVCA


CEE’s Internet Audience Grew to Over 200 Million in 2011

016

+ The CEE region is larger than both Brazil and India in terms of Internet audience

+ Russia is the largest Internet audience in Europe

Source: Internet World Stats

Russia

Turk

ey

Pola

nd

Ukrai

ne

Roman

ia

Czech

Rep

.

Hunga

ry

Belar

us

Bulga

ria

Slov

akia

Croat

ia

Lith

uani

a

Slov

enia

Latv

ia

Esto

nia

0

10

20

30

40

50

60

70


Mobile Page Views in CEE Grew Robustly in 2011

017

CEE re

gion

Lith

uani

a

Esto

nia

Pola

nd

Bulga

ria

Turk

ey

Czech

Rep

.

Russia

Hunga

ry

Latv

ia

Belar

us

Slov

enia

Croat

ia

Ukrai

ne

Slov

akia

0%

200%

400%

600%

800%

1000%

1200%Growth in Mobile Page Views, 2010-2011

Source: Gemius


Slovenia

Turkey

Lithuania

Croatia

Czech Rep.

Serbia

Hungary

Estonia

Russia

Latvia

Slovakia

Ukraine

Romania

0% 5% 10% 15% 20% 25% 30%

27.6%

23.7%

23.7%

15.5%

14.3%

13.3%

12.9%

12.7%

11.8%

10.7%

9.3%

8.9%

8.4%

But Significant Upside Still Remains

018

Source: Gfk Group

CEE Smartphone Penetration:

14.8% vs.

40-50% in U.S.,

Western Europe


19

CEE Mobile Data and Social Network Penetration

Sources: Gemius, Vincos.it


+ Locally developed companies have managed to maintain strong market share vs. global leaders, unlike in most Western markets

020

CEE – Homegrown Talent Breeds Local Leaders

Global Leaders CEE Equivalents


ACM International Collegiate Programming World Finals

021

Place University

1 St. Petersburg State University of IT, Mechanics and Optics

2 University of Warsaw

3 Moscow Institute of Physics & Technology

5 Belarusian State University

10 Moscow State University

12 Belarus State University of Informatics and Radioelectronics

13 Saratov State University

18 Jagiellonian University in Krakow

18 National Technical University "Kharkiv Polytechnic Institute"

18 Nizhny Novgorod State University

18 St. Petersburg State University

18 University of Latvia

18 University of Wroclaw

18 Ural Federal University

+ 14 of the top 20 teams in the 2012 ACM International Collegiate Programming World Finals were from CEE universities


+ Cluster of excellence – sophisticated base of programmers and IT knowledge

+ ~950k science and tech graduates per year – more per-capita than India/EU/North America; heritage of technology and engineering excellence backed by the educational system focus

+ Lower attrition boosts knowledge retention and value

+ Low tax rates encourage entrepreneurship, although further government support necessary

+ Successful history of entrepreneurialism, with significant investments and public listings

022

CEE – Tech Expertise Drives VC Market

Sector IT Software Software Search Web portal

CEE Base Estonia Czech Republic

Russia Russia Russia

Exit Type Acquisition IPO Series D IPO IPO

Valuation*

$8.5 billion $530 million $1 billion $7.6 billion $6.6 billion

Sources: Forbes, Bloomberg* Valuation for IPOs based on market capitalization as of October 12, 2012


23

Country Snapshot – Ukraine+ IT outsourcing sector reached $1 billion in 2011, exceeding arms exports for the first

time

+ Ukraine has the largest pool of engineering talent in CEE, accounting for 25% of the CEE IT offshoring market+ 16,000 graduates with IT specializations each year+ 4,000 IT companies specializing in offshore development+ Ranked 26th most-attractive outsourcing destination in the world by Sourcingline

+ Ukrainian development teams are building significant value for venture-backed companies:

Source: Financial Times, EVCA, Sourcingline, VC Cafe

+ Founded in Ukraine in 2006+ Leader in facial recognition and computer-vision technology+ Acquired by Motorola Mobility (Google) this month for

approximately $40 million

+ Founded in Israel in 2006, development team in Ukraine+ Flash web site development platform + Has raised over $60 million from leading VCs, reportedly rejected $200

million acquisition offer in 2011

+ Founded in the U.S. in 1993, team in Ukraine since 2006+ Leader in software engineering outsourcing+ Held IPO on NYSE in February 2012, market cap is currently over

$800 million


+ Leading software engineering outsourcing company in CEE and the CIS, with development centers and offices across CEE

+ Operated by an experienced and Western-oriented management group

+ Recognized as one of the fastest growing specialty application development leaders

+ In February 2012, EPAM successfully listed on the NYSE under the ticker symbol “EPAM”

+ Blue-chip diversified client base

024

EPAM – CEE’s IT Powerhouse


25

Over 92% of EPAM’s Workforce is in CEE+ Ukraine is home to EPAM’s largest workforce outside of Belarus and its fastest growing

operations


Shift to Mobile Data: Just Beginning Globally

026

Source: Informa, Morgan Stanly

Smartphone "Dumb" Mobile Phone0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

953

6,100

Smartphone vs. Basic Mobile Subs

Global Smartphone Penetration:

15.6%


Mobile Data Usage Will Drive E-Commerce…

027

Source: Kleiner Perkins Caulfield Byers, ComScore

1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12(0.0%)

5.0%

10.0%

15.0%

20.0%

U.S. eCommerce YoY GrowthU.S. Mobile Commerce as % of eCommerce


…As Well as Advertising Spend

028

Source: Kleiner Perkins Caulfield ByersNote: *Internet (excl. mobile) advertising reached $30B in USA in 2011 per IAB, Mobile advertising reached $1.6B per IAB. Print includes newspaper

and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share.

Print Radio TV Internet Mobile0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

7%

15%

43%

26%

10%

25%

11%

42%

22%

1%

Time Spent Ad Spend

~$20B+ Opportunity in the U.S.

% of Time Spent in Media vs. % of Ad Spend, U.S. 2011


29% of Adults in the U.S. Own Tablets, Up From 2% in Mid-2009

029

0%

5%

10%

15%

20%

25%

30%

35%

2%

29%

% of U.S. Adults That Own Tablet Computers or e-Readers

4/2009-1/2012

Source: Kleiner Perkins Caulfield Byers


Big Data World: Data Needs to Increase 50x by 2020

030

2012 20200

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

2,000,000

100,000,000

Global Data Needs (terabytes)

Source: Oracle


Takeaway – Technology is Changing Every Aspect of Our Lives

031

What Then Now

Computers Desktops/Notebooks Tablets/Smartphones

Voice Fixed Line Mobile

NewsNewspapers, Dedicated

Reporters Twitter

Note taking Pen and paper Evernote

Books Paperback/Hardcover Amazon Kindle / Apple iBooks

Music CDs, records Spotify

Discounts Clipping coupons Groupon

Yellow pages/directories Phone book Yelp

Video rental Physical stores/Blockbuster Netflix, Amazon

Navigation Paper maps, traffic reports Google Maps, Waze

TelevisionLinear programming, set

channels YouTube, On Demand

Sound Tape recorders SoundCloud


+ Nearly Ubiquitous High-Speed Wireless Access in Developed Countries

+ Unprecedented Global Technology Innovation

+ Fearless (and Connected) Entrepreneurs

+ Available (and Experienced) Capital

+ Fearless (and Connected) Consumers

+ Inexpensive Devices / Access / Services (Apps)

+ Ability to Reach Millions of New Users in Record (and Accelerating) Time

Upcoming Changes Will Be of an Unprecedented Magnitude

032

Grabbing these trends will determine tomorrow’s TECHNOLOGY BILLIONAIRES


33

DisclosuresThis Presentation is for informational purposes and is not meant as investment advice or a recommendation as to any course of investment action. Further, it not an offer, solicitation or recommendation to purchase or sell any securities or partnership interests of any investment fund managed by or affiliated with Siguler Guff Advisers, LLC (“Siguler Guff”) (each, a “Fund” and, collectively, the “Funds”). This presentation does not present a full or balanced description of any Fund or investment plan, and should not be used as the exclusive basis for an investment decision.This information may include general market activity, industry or sector trends, or other broad-based economic, or market conditions. This information should not be construed as research or investment advice. This information may not be current, and Siguler Guff has no obligation to provide any updates or changes to such information. Economic and market forecasts presented herein reflect our judgment as of the date of this material and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific investor or client. Potential investors and clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances. References to indices, benchmarks or other measure of relative performance over a specified period of time are provided for your information only.

Potential investors are urged to consult a professional adviser regarding any economic, tax, legal or other consequences of entering into any transactions or investments described herein. Alternative investment strategies, such as private equity, inherently involve risk and may not be suitable for all investors.

Any reproduction or distribution of this Presentation, or any information contained herein, is prohibited. This Presentation contains highly confidential and proprietary information that is of independent economic value, with respect to information concerning portfolio funds and companies. By accepting this Presentation, the recipient acknowledges that disclosure of any information contained herein could cause substantial, irreparable harm to Siguler Guff, and the funds and portfolio companies, and agrees not to disclose such contents to any person or entity (except as required by law), and not to use such contents in any way detrimental to the Funds, Siguler Guff, or the portfolio funds or companies.

This Presentation may contain performance information. Past performance does not guarantee future results, and no representation or warranty, express or implied, is made regarding future performance. The general partners of the underlying funds have not reviewed or approved of this Presentation. This Presentation contains certain statements, estimates and projections that are “forward-looking statements.” All statements other than statements of historical fact in this Presentation are forward-looking statements and include statements and assumptions relating to the following: plans and objectives of management for future operations or economic performance; conclusions and projections about current and future economic and political trends and conditions; and projected financial results and results of operations. These statements can generally be identified by the use of forward-looking terminology, including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “continue”, “rankings” or other similar words. Siguler Guff does not make any representations or warranties (express or implied) about the accuracy of such forward-looking statements. Readers of this Presentation are cautioned not to place undue reliance on forward-looking statements.

This Presentation may include footnotes or endnotes which, if included, are an integral part of this Presentation and should be read in their entirety. Any sale of securities in Canada will be effected through an affiliated broker dealer.

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