slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
“You Can’t Stop the Waves, But You Can Learn to Surf!” PowerPoint Presentation
Download Presentation
“You Can’t Stop the Waves, But You Can Learn to Surf!”

Loading in 2 Seconds...

play fullscreen
1 / 34

“You Can’t Stop the Waves, But You Can Learn to Surf!” - PowerPoint PPT Presentation


  • 233 Views
  • Uploaded on

“You Can’t Stop the Waves, But You Can Learn to Surf!”. Larry Kubal – Labrador Ventures May 31, 2007. “You Can’t Stop the Waves, But You Can Learn to Surf!”. 34 minutes, 34 slides to answer two questions:

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about '“You Can’t Stop the Waves, But You Can Learn to Surf!”' - Rita


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

“You Can’t Stop the Waves,

But You Can Learn to Surf!”

Larry Kubal – Labrador Ventures

May 31, 2007

you can t stop the waves but you can learn to surf
“You Can’t Stop the Waves,But You Can Learn to Surf!”
  • 34 minutes, 34 slides to answer two questions:
  • Part 1: The Market Where are we in the VC wave cycle?
  • Part 2:The Investment Opportunities Where are the opportunities today, created by cultural & technological waves that are transforming our world?

CONFIDENTIAL

pwc s cascading technology waves
PWC’s Cascading Technology Waves

Source: PricewaterhouseCoopers

CONFIDENTIAL

gartner s hype cycle of emerging technologies
Gartner’s Hype Cycle of Emerging Technologies

VISIBILITY

TIME

Technology Peak of Trough of Slope of Plateau of

Trigger Inflated Disillusionment Enlightenment Productivity

Expectations

Source: Gartner Group

CONFIDENTIAL

kondratiev waves components of the economic cycle wave form
Kondratiev Waves – Components of the Economic Cycle Wave Form

Steam Engine Railroads Electrical Engineering Petrochemicals Information

Cotton Steel Chemistry Automobiles Technology

P R D E

1800 1850 1900 1950 2000

P: prosperity

R: recession

D: depression

E: improvement

Source: Wikipedia, Labrador

CONFIDENTIAL

mathematics of the kondratiev wave
Mathematics of the Kondratiev Wave

Николай Дмитриевич Кондратьев

Nikolai Kondratiev (1892-1938)

CONFIDENTIAL

a more conceptual approach
A More Conceptual Approach

Waves of change / growth

Disappointment

Market values

Growth

Hype

Realism

Time

Source: Morgan Stanley Dean Witter & Co., Labrador

CONFIDENTIAL

liquidity cycle in venture capital
Liquidity Cycle in Venture Capital
  • $7B in Q1’07, best in 5 years

VC / Angelinvestmentsin companies

  • Up rounds exceeded down rounds for 13th consecutive quarter

Company

growth

LP

investment

in VC

  • $30B+ 2006 commitments best in 5 years

Angel

Shortcut

Company

liquidity

events

  • Q1’07 IPOs raise $1.2B – double Q1’06

CONFIDENTIAL

annual progress along the curve
Annual Progress Along the Curve

Waves of change / growth

Growth

2006

Disappointment

Market values

Realism

Hype

2000

2005

1999

2001

2004

2003

2002

Time

Source: Morgan Stanley Dean Witter & Co., Labrador

CONFIDENTIAL

potential divergence for different vc models
Potential Divergence For Different VC Models

Waves of change / growth

Growth

2007

2006

Disappointment

?

Market values

Realism

Hype

2000

2005

1999

2001

2004

2003

2002

Time

Source: Morgan Stanley Dean Witter & Co., Labrador

CONFIDENTIAL

slide11

“I’ve been telling our investors for three or four years, I don’t think this is a good asset class to commit money to right now.”

  • Paul FerriFounding Partner Matrix Partners (1982)Private Equity Hall of Fame (2003)quoted in Private Equity Analyst, March 2004
slide12

“Technology finance has turned rational – so I’m outta here.”

  • Howard AndersonWilliam Porter Distinguished LecturerMIT Sloan School of Management(co-founder Battery Ventures)quoted in Technology Review, June 2005
slide13

“The traditional venture model seems to us to be broken.”

  • Steve DowGeneral Partner, Sevin Rosen Fundsquoted in the New York Times, October 7, 2006
why are smart experienced people saying this
Why Are Smart, Experienced People Saying This?

Case for the venture model being broken:

  • LOTS OF MONEY: lots of funds funding lots of deals – 10,000 over the last 4 years
    • “Capital overhang” has become a “company overhang”
  • VENTURE FRATRICIDE: excessive competition funded within market segments
  • EXIT MARKETS CONSTRAINED: getting liquidity at good return multiples is tough
  • EXTENDED HOLDING TIMES: from initial investment to a liquidity event – M&A and IPO are at historic highs ( > 5 years)

“There is a pig in the python and the python is constipated.”

CONFIDENTIAL

slide15

"It's a great time for investing in early-stage companies that will mature in three to five years."

  • Larry KubalManaging Partner, Labrador Venturesquoted in the Los Angeles Times, July 13, 2003
slide16

So who is right?

What accounts for the divergence of opinions?

Most Important:

What does the future hold?

CONFIDENTIAL

fund size a defining difference

Fund Size

($ Millions)

Fund Size: A Defining Difference

OPTIMISTIC

PESSIMISTIC

$500

$450

$400

$350

$300

$250

$200

$150

$100

$50

$0

Labrador

Ventures

Matrix

Partners

Battery

Ventures

Sevin

Rosen

CONFIDENTIAL

case study to support the broken model thesis
Case Study to Support the Broken Model Thesis…
  • $400M fundTarget 20% IRR (3x return over 6 years)20 company investment portfolio
  • Must create $1.2 billion of exit value
  • If 20% of a company owned at liquidation, then portfolio needs to create $6 billion of value
  • If ALL are winners (aggressive) = $300 million per company
  • If 50% winners = $600 million per company
  • CHALLENGE: In today’s environment, assumptions > $150 million average for winners is very optimistic

Thanks to Josh Kopelman, MD First Round Capital for the example.

CONFIDENTIAL

what does this mean for the early stage investor today
What Does This Mean For the Early Stage Investor Today?

The venture business is experiencing a sea change … and the earliest stage VC or angel investor is well-positioned.

Key Positioning Factors

  • Small “fund” size
  • Low $ / partner
  • Earliest stage focus – small investment, very early at low valuations
  • Experienced, consistent, disciplined investment team & strategy
  • Capital efficiency a core value
  • Manage company growth and cash to fundable milestones
  • Well-networked with larger VCs that are potential follow-on funders

CONFIDENTIAL

supported by data experience small size are success indicators

IRR increases with experience

IRR

(%)

25

20

15

10

5

0

1 2 3 4 5 6 7 8 9 10 11

Fund #

Supported by Data: Experience & Small Size are Success Indicators

IRR increases with more partners & fewer dollars

IRR

(%)

25

20

15

10

5

0

0 0.2 0.4 0.6

# Partnersper $100M

Source: Lerner & Schoer 2005

CONFIDENTIAL

early seed vc returning to historic pre eminence
Early / Seed VC Returning to Historic Pre-eminence

Returns to investors as of 12/31/2006

20 years

10 years

5 years

3 years

1 year

Early / seed VC

Later stage VC

NASDAQ

S & P 500

20.5

14.0

10.1

9.2

36.4

9.0

6.4

6.7

(3.0)

3.7

4.3

4.3

6.5

9.4

6.3

8.2

9.9

25.2

4.8

10.8

Source: Thompson Financial, NVCA

CONFIDENTIAL

valuation inflation has not impacted the early stage
Valuation Inflation Has Not Impacted the Early Stage

Pre-money valuations – early stage companies

Source: PriceWaterHouseCoopers, NVCA

CONFIDENTIAL

early seed vc driven by recognized value creation

Financing round

  • Average % price increase
Early / Seed VC Driven by Recognized Value Creation
  • Series A to Series B
  • Series B to Series C
  • Series C to Series D
  • 120%
  • 60%
  • 34%

Source: Fenwick & West’s Q1 ’07 San Francisco Bay Area Venture Capital Survey

CONFIDENTIAL

summary of the health of the vc market
Summary of the Health of the VC Market
  • For whom is the traditional venture model especially challenging today?
    • $400+ million funds that focus on capital intensive businesses or Series B and later
  • For whom is the model still intact and vital?
    • Smaller funds that invest earlier and do not depend on exceptional exit markets
  • How long will exit challenges persist?
    • We believe the state of the exit markets is an anomaly and will self correct in the normal cyclicality of our business

CONFIDENTIAL

slide25

Part 2: Investment Opportunities

Where are the investment opportunities today, created by cultural & technological waves that are transforming our world?

four waves are changing our lives and creating investment opportunities
Four Waves Are Changing Our Lives and Creating Investment Opportunities
  • Globalization
  • Digitization
  • Millennialization
  • Geo-political destabilization

CONFIDENTIAL

globalization increasing interdependence among nations
Globalization: Increasing Interdependence Among Nations
  • Outsourcing originally driven by lower manual labor costs has transitioned to knowledge workers
    • Nearly 100% of Citibank’s IT programming requirements are outsourced to India
  • 50% of US Treasury debt obligations are held by foreign entities
  • China accounts for 20% of the world population. Its people have transitioned into 21st century consumers representing the largest single market in the world
    • Morgan Stanley forecasts China as the #1 consumer of TMT (technology, media and telecommunications) products and services in 2010

CONFIDENTIAL

digitization content creation distribution and consumption are increasingly frictionless
Digitization: Content Creation, Distribution and Consumption Are Increasingly Frictionless
  • News, movies, music and communication transition to digital: newspapers, DVDs, CDs and phone calls become bits in the ether
  • As old media transitions to new digital media, advertising dollars follow
  • Beyond consumers, digitization encompasses enterprise business information, legal documents and medical records

Behavioral, psycho-social waves of change are underway -- as ease to create, distribute and consume digital content grows.

CONFIDENTIAL

millennialization millennials rather than boomers now define the online consumer experience
Millennialization: Millennials Rather Than Boomers Now Define the Online Consumer Experience
  • Millennials (born 1982-2000) -- the internet generation immersed in digital technology and content
  • “The first generation to have a home PC, a cell phone while still in school, a Nintendo, and an iPod for Xmas. The Internet is their medium.” –Duncan Davidson
  • Multi-tasking, multi-cultural – in charge of their online experience – “long tailers.” Demand personalized, customized, self-expressive, creative, engaged, communicative, anytime/anywhere, connected web experiences.
  • Global: 75 million US, 200 million China

From Facebook to YouTube, the Millennials are defining the evolution of the consumer online experience that the rest of us adapt to.

CONFIDENTIAL

geo political destabilization power shift from massive military to small groups
Geo-Political Destabilization: Power Shift From Massive Military to Small Groups

Higher energy costs

  • High instability in the Middle East: Afghanistan, Iran, Iraq, Israel, Lebanon, Syria
  • Higher energy costs
  • Growing sensitivity to terrorism

Attention & dollars to

  • Solar
  • Fuel cells
  • Batteries

Demand for security

  • Surveillance
  • Identification
  • Tracking
  • Detection

Funds have been created to address “Homeland Security.” In the last year KPCB has launched initiatives in both Greentech and Pandemic / BioDefense.

CONFIDENTIAL

technology platform infrastructure waves also define areas of investment opportunity

Global data subscribers - cellular

Growth of WiFi hotspots

# of hot spots

clients

(M)

Subscribers

(M)

Global broadband subscribers

Subscribers

(M)

Technology Platform/Infrastructure Waves Also Define Areas of Investment Opportunity

Source: Morgan Stanley research estimates

CONFIDENTIAL

examples of investments riding the intersections of cultural and platform waves
Examples of Investments Riding the Intersections of Cultural and Platform Waves
  • Customized streaming internet radio connecting listeners with the music they love – anytime, anywhere.
  • Cultural– Digitization, Millennialization Platform – Cellular, WiFi
  • Allows users to indulge, discover and personalize their passion for video entertainment – online or on TV.
  • Cultural– Digitization, Millennialization Platform – Broadband, Cellular, WiFi
  • Mobile photo and video messaging -- transforming the camera phone into a tool for mobile video and photo communication.
  • Cultural– Digitization, Millennialization Platform – Cellular

CONFIDENTIAL

four takeaway thoughts
Four Takeaway Thoughts
  • The venture business is cyclical. We are currently in the growth phase of the wave with the four elements of the venture liquidity cycle generally in balance and improving.

2. The venture capital industry itself is in transition. For some funds, the model is structurally challenged – at least temporarily. Despite their best efforts, returns for their investors will be sub-standard.

3.Experienced investors at the earliest stage, investing relatively small amounts at low valuations, are well-positioned in the current environment.

4.Fundamental cultural and technology transitions are underway. These waves of change are transforming our world. Startups that ride the intersections of multiple waves represent extraordinary investment opportunities.

CONFIDENTIAL