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Venture World 2005

Venture World 2005. Michael Danaher Wilson Sonsini Goodrich & Rosati October 2005. Venture World – 2000. IT’S A MAD MAD MAD MAD WORLD. Venture World – 2002. WATERWORLD. Budget = $175,000,000 • Box Office = $88,246,220. Venture World – 2005.

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Venture World 2005

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  1. Venture World 2005 Michael Danaher Wilson Sonsini Goodrich & Rosati October 2005

  2. Venture World – 2000 IT’S A MAD MAD MAD MAD WORLD

  3. Venture World – 2002 WATERWORLD Budget = $175,000,000 • Box Office = $88,246,220

  4. Venture World – 2005 MASTER AND COMMANDER: THE FAR SIDE OF THE WORLD

  5. The Nasdaq Force Field Continues • Valuation Trends • Deal Terms • Exit Strategies • Tilting Towards Asia

  6. The Nasdaq Force Field Continues

  7. $82.8 $80 $58.8 $60 $50.5 $40 $26.9 $17.8 $17.1 $20 $13.1 $12.7 $9.2 $9.4 $7.0 $5.4 $0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1H05 The Nasdaq Force Field Continues FUND INFLOWS Funds Raised ($B) $18.8* Source: “Venture Capital Industry Overview,” VentureSource, October 2005 * Annual projection Source: Bloomberg, Nasdaq 1994-2005

  8. 2005 Fund Formation • Roman Numeral Funds Dominate • Accidental result of year 2000 venture market

  9. 2005 Fund Formation • Increased Focus on China and India • More geographic funds • More talk about Asian strategies

  10. So Goes Nasdaq... FUND OUTFLOWS Amount Invested ($B) Number of Deals 1605 $21.6** * YTD05 = 1Q05-3Q05 ** Annual projection Source: “Venture Capital Industry Overview,” VentureSource, October 2005 Source: Bloomberg, Nasdaq 1992-2005

  11. So Goes Nasdaq... LIQUIDITY EVENTS 284 Amont Paid ($B) Number of Transactions $30.0** Source: “Venture Capital Industry Overview,” VentureOne, October 2005 * YTD05 = 1Q05-3Q05 ** Annual projection Source: Bloomberg, Nasdaq 1992-2005

  12. For Venture Funds, It’s Still a “Hits” Business THE BLAIR WITCH PROJECT Budget = $60,000 Box Office = over $150 million

  13. Valuation Trends

  14. Median Pre-money Valuations by Round $40 $29 $30 $25 $20 $14 $13 $10 $6 $5 $3 $3 $0 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 Later Stage Second Round First Round Seed Round Source: “Venture Capital Industry Overview,” VentureOne, October 2005

  15. WS Investments Percentage of Series A Deals Increased—But Valuations Did Not Source: WS Investment Data, October 2005

  16. WS Investments Source: WS Investment Data, October 2005

  17. WSGR Venture Financing Up Rounds Are Up Source: WSGR Transaction Data, October 2005

  18. Deal Terms

  19. Deal Terms Plain Vanilla Is In

  20. Deal Terms Source: WSGR Transaction Data, October 2005

  21. Deal Terms (9% in 2004) (13% in 2004) Source: WSGR Transaction Data, October 2005

  22. Deal Terms • New Trend? • Partial Founder cash-outs in later stage deals

  23. Exit Strategies

  24. YTD05* 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 0% 20% 40% 60% 80% 100% IPOs M&As IPOs still Down Source: “Venture Capital Industry Overview,” VentureOne, October 2005 * YTD05 = Q105 – Q305

  25. Who’s Killing the IPOs? • Multiple Theories • The SEC and the accountants? • Higher perceived liability risk? • Higher certainty of M&A exits? • Investor impatience? • Reduced market receptivity to young companies? • Reduced supply of candidates? • The butler?

  26. Reckless Prediction #1 • IPO Rates to Double in 1-2 years • Capital markets will want high-growth companies • Lots of good companies being built • Regulatory and accounting costs will be reined in

  27. Reckless Prediction #2 • The “Build to Sell” Business Model Will Become More Common • e.g. • Spin-in’s • “Bio wells”

  28. Is Cisco Marxist? Karl Marx John Chambers

  29. Tilting Towards Asia

  30. Venture Investment in Asia • Intel • 600 venture deals • 300 in China • WSGR • Approaching nearly 2 financings per week in China • Approaching nearly 1 financing per week in India • India • 5 years behind China • Venture financings: $884 million in 2003, $1.3 billion in 2004

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