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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

Venture World 2005

Michael Danaher

Wilson Sonsini Goodrich & Rosati

October 2005


Venture world 2000

Venture World – 2000

IT’S A MAD MAD MAD MAD WORLD


Venture world 2002

Venture World – 2002

WATERWORLD

Budget = $175,000,000 • Box Office = $88,246,220


Venture world 20051

Venture World – 2005

MASTER AND COMMANDER: THE FAR SIDE OF THE WORLD


Venture world 2005

  • The Nasdaq Force Field Continues

  • Valuation Trends

  • Deal Terms

  • Exit Strategies

  • Tilting Towards Asia


Venture world 2005

  • The Nasdaq Force Field Continues


Venture world 2005

$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 ContinuesFUND INFLOWS

Funds Raised ($B)

$18.8*

Source: “Venture Capital Industry Overview,” VentureSource, October 2005

* Annual projection

Source: Bloomberg, Nasdaq 1994-2005


2005 fund formation

2005 Fund Formation

  • Roman Numeral Funds Dominate

    • Accidental result of year 2000 venture market


2005 fund formation1

2005 Fund Formation

  • Increased Focus on China and India

    • More geographic funds

    • More talk about Asian strategies


Venture world 2005

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


So goes nasdaq liquidity events

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


For venture funds it s still a hits business

For Venture Funds, It’s Still a “Hits” Business

THE BLAIR WITCH PROJECT

Budget = $60,000

Box Office = over $150 million


Venture world 2005

  • Valuation Trends


Median pre money valuations by round

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


Ws investments

WS Investments

Percentage of Series A Deals Increased—But Valuations Did Not

Source: WS Investment Data, October 2005


Ws investments1

WS Investments

Source: WS Investment Data, October 2005


Wsgr venture financing

WSGR Venture Financing

Up Rounds Are Up

Source: WSGR Transaction Data, October 2005


Venture world 2005

  • Deal Terms


Deal terms

Deal Terms

Plain Vanilla Is In


Deal terms1

Deal Terms

Source: WSGR Transaction Data, October 2005


Deal terms2

Deal Terms

(9% in 2004)

(13% in 2004)

Source: WSGR Transaction Data, October 2005


Deal terms3

Deal Terms

  • New Trend?

    • Partial Founder cash-outs in later stage deals


Venture world 2005

  • Exit Strategies


Ipos still down

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


Who s killing the ipos

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?


Reckless prediction 1

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


Reckless prediction 2

Reckless Prediction #2

  • The “Build to Sell” Business Model Will Become More Common

    • e.g.

      • Spin-in’s

      • “Bio wells”


Is cisco marxist

Is Cisco Marxist?

Karl Marx

John Chambers


Venture world 2005

  • Tilting Towards Asia


Venture investment in asia

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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