The Hot Sectors! The Facts About Exits Sentiment in Ventureland Thoughts on Three Rising Trends - PowerPoint PPT Presentation

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The Hot Sectors! The Facts About Exits Sentiment in Ventureland Thoughts on Three Rising Trends

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  1. The Hot Sectors! • The Facts About Exits • Sentiment in Ventureland • Thoughts on Three Rising Trends CONFIDENTIAL

  2. Where’s The Biggest Investment Opportunity Today? 55% 23% 11% 7% Poll conducted at AlwaysOn Conference Summer 2007 4% CONFIDENTIAL Greentech Internet B2B Mobile/Wireless Media & Entertainment Security

  3. Anything Else Worth Investing In? • Enterprise equipment • Telecom services • Healthcare services • Biometrics • Semiconductors • Financial services CONFIDENTIAL

  4. Exits: Facts and Myths CONFIDENTIAL

  5. Private Equity: A Potent Force • 1st half of 2007 • 6 of 10 largest tech M&A done by Private Equity • Europe no exception • 2 largest: Freescale, Philips Semi • Pending PE debt issuance • Jan 06 = $40B • June 07 = $250B CONFIDENTIAL

  6. Field of Acquirers Has Shrunk • 2006 • 40% of all tech M&A above $50M done by 10 companies • Average market cap of acquirers = $100B Enormous buying power in hands of a few CONFIDENTIAL

  7. Myth #1 The IPO market is back! CONFIDENTIAL

  8. Tech IPOs Have Become Rarer 2004 -2007 2001-2003 1990’s 130 20-25 55 IPOs Per Year Today we have less than half the IPOs of pre-bubble 1990’s CONFIDENTIAL

  9. VC Exits above $50M M&A IPO 60% 1990’s 40% Past 4 years 10% 90% CONFIDENTIAL

  10. Significant “IPO Premium” Healthcare Services Business Services Technology IPO Premium 43% 26% 37% …and investors enjoy continued upside potential CONFIDENTIAL

  11. 2007 versus 1997 • VCs deploying 2.5X more capital versus 10 years ago but…… Same # of exits above $100M 500% Increase in M&A exits 80% decline in IPO exits CONFIDENTIAL

  12. Implications? • Buyer concentration = continual tough M&A market • No re-population of the buyer base • Selling our best companies • Mortgaging our future? CONFIDENTIAL

  13. A Shrinking Buyer Base • 1640 public tech companies today • Down 35% from Peak in 2000! • 7 straight years of fewer public tech companies CONFIDENTIAL

  14. Myth #2 The bar is incredibly high for taking a company public….easier to sell the business CONFIDENTIAL

  15. Public Market Facts • 2/3 of names on NASDAQ are < $500M market cap • 80% < $1 Billion Market Cap • Vaunted NYSE? • Nearly 40% < $1 Billion market cap • 25% < $500M market cap CONFIDENTIAL

  16. Non Bulge Bracket Relevant • Bulge Bracket Firms did 25% of Tech IPOs during 80’s and 90’s • 40 to 60 deals/Year • Today do 80% of Tech IPO’s • ~ 40 deals/Year • What about the other 100 deals? • Many are not getting done…but could CONFIDENTIAL

  17. 1990-1998 Avg market cap? Avg raise? 65 tech IPOs $197M $37M Small Cap IPOs…Not Just For Jeffries & Co; et.al…. CONFIDENTIAL

  18. Half the IPOs Raise <$100M <$50M >$100M $50 - $100M Note: IPOs from QI 2004 - Q2 2007. Source: Dealogic CONFIDENTIAL

  19. Clearly Not Just Tech…. CONFIDENTIAL

  20. IPO vs. Sale of Business All IPOs between January 1, 2006, and June 30, 2007, where the market cap was less than $300 million... CONFIDENTIAL

  21. Implied EBITDA? $15.7M CONFIDENTIAL

  22. Moderate Revenue Bar… Riverbed Networks ShoreTel Comm Acme Packet Allot Comm Pre-IPO LTM Revenue $49M $32M $58M $71M PeopleSupport = $37M…..Compellent = $38M CONFIDENTIAL

  23. Not Just Web Companies Going Public….. • Other Tech IPOs in past 12 months…. • Aruba, Bigband Networks, Infinera, Starent Networks, Veraz, Airvana, Mitel…. CONFIDENTIAL

  24. What If….. …..AT&T bought Cisco for $250M in 1991 CONFIDENTIAL

  25. Instead…. • Sequoia chose to take public at a $225M market cap • Good Decision? CONFIDENTIAL

  26. Conclusion? Let’s get smart about the Small Cap IPO market…… CONFIDENTIAL

  27. Data Analytics: Attractive Economics For Customers and Investors CONFIDENTIAL

  28. Thinking by Numbers • Goal: turning data into profits • Intuitive and experiencial expertise losing out to number crunching • Still…..statistical analysis faces tremendous skepticism • threatens information monopoly of experts • Money Ball effect could help drive acceptance CONFIDENTIAL

  29. Analytics Coming of Age • Retail • Video to assess shopping patterns in stores • Getting people to stay longer/spend more • Data filtering to lower returns/avoid markdowns • Web • Too many to list…. • Consumer Marketing • Modeling consumer buying proclivity • Hospitality Industry • Gary Loveman’s majic at Harris Casino CONFIDENTIAL

  30. Vintage Wine Price Predictor • Princeton economics professor wondered….. • what factors determine wine prices? CONFIDENTIAL

  31. Don’t Need to Drink It…. • Professor speculated that tasters were unreliable • Modeling pinpointed important variables • Most important determinate of vintage quality? • seasonal temperature • obvious but overlooked CONFIDENTIAL

  32. “Expert” Backlash…. • Wine experts blasted approach • Convinced industry publications not to print it • Gauge has proven far more accurate than experts CONFIDENTIAL

  33. Still Some Work To Do • Many failed attempts… • Companies burned by unfulfilled promises • Uphill battle to prove efficacy • But companies remain interested…. • Top line boosters > cost reduction tools CONFIDENTIAL

  34. Managed Services: A Trend To Bet On CONFIDENTIAL

  35. Services….Upheaval in the Equipment Space • New and more effective models emerging • Department managers controlling more IT spending • IT organizations want to know less and less • Coupling managed service with purchase • Cisco leading charge CONFIDENTIAL

  36. Services….More Acceptance From Resellers • VAR margins down to 10% to 20% • Finally learning to sell services • Europe as a model CONFIDENTIAL

  37. Services = Customer Lock-in • Services keep customers loyal • Nokia expects $500M in revenue from SoonR type service in 4 years • Hopes service will keep users on Nokia platform CONFIDENTIAL

  38. Operational Benefits of Managed Services Model • No legacy platforms to maintain • 3000 Microsoft developers maintain Windows 2000 • Upgrades pushed out daily • Birds eye view of customer behavior • Land and expand • Much shorter sale-to-revenue cycle CONFIDENTIAL

  39. Service Provider = More Valuable Company • Acquirers gain immediate leverage • customers are readily accessible versus behind the firewall CONFIDENTIAL

  40. Salesforce.com 35,000 Customers 1,000,000 Users CONFIDENTIAL

  41. Software Tools: Not Entirely a Shitty Business CONFIDENTIAL

  42. Two Honorable Mentions • Adobe = $25B market cap, 9x rev mult. • Divx = $0.5B market cap, 7x rev mult. Stay clear of niche development environment tools Target consumer friendly apps (i.e Flash, MPEG 4) Way of playing media & content trend CONFIDENTIAL

  43. Worth a Second Look? • Consumer auction site • Job boards • Services targeting the aging population • Virus protection • Online banking CONFIDENTIAL

  44. New Fixes to Age Old Problems….Rarely work • Verifiable Email • Better local Search • Improving marketing response rates • Targeting the “under-served” SMB • Fuel Additives? CONFIDENTIAL

  45. VC Sentiment 2007: What Are We Thinking? CONFIDENTIAL

  46. Current Beliefs in Venture Land • Early stage has best return profile • Ad supported businesses scale the best • Enormous $300 billion spend to tap into! • Search is the driver of economic activity • Paying up for a hot company is smart • Emerging markets are hot CONFIDENTIAL

  47. Indeed….Search is King Direct Access Big 5 Search 1800 contacts 8.7% 68% The Street.com 5.1% 64% WebMD 8.6% 63% 1800 Flowers 8.5% 62% Blue Nile 6.6% 60% The Knot 7.6% 55% Move.com 4.1% 53% Netflix 13.0% 50% FTD Group 7.2% 48% DrugStore 10.1% 48% Overstock 10.5% 47% CNET 5.9% 46% Monster 7.7% 45% RealNetworks 23.0% 36% As of August 25, 2007 CONFIDENTIAL

  48. Positive (but weak) Relationship Between Ad $ and Non Search Traffic 45% RNWK 40% MOVE 35% NFLX 30% FLWS Trend line WBMD CNET Sales and Marketing Spending as Pct of FY06 Revenue KNOT MNST 25% REDE 20% FTD TSCM 15% PCLN 10% NILE OSTK 5% DSCM CTAC 0% 65% 60% 40% 70% 30% 45% 35% 55% 50% Percentage of Visitors from a Nonsearch-Engine Source 48 CONFIDENTIAL CONFIDENTIAL

  49. P&G….The Gold Standard of Advertising Efficiency 12.0% 10.0% R-Squared = .84 8.0% 6.0% Organic Sales Growth 4.0% 2.0% 0.0% 9.0% 10.5% 11.0% 10.0% 9.5% Advertising as a % of Sales CONFIDENTIAL

  50. Strong Opinions in Web 2.0 Land… • Web companies should create open platforms • Users should have access and control of their data • Social features are the future of all consumer web apps • E-tailing is not very interesting CONFIDENTIAL