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Why Venture Capital Will Out Perform PE Over The Next 5 Years - PowerPoint PPT Presentation


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Why Venture Capital Will Out Perform PE Over The Next 5 Years Why Has PE done so well this decade? PE Salad Days of 2000-2007… Massive liquidity in the economy 17 rate cuts by the fed 2000 to 2004 Low equity risk premium Attractive public market valuations post bubble

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Presentation Transcript
pe salad days of 2000 2007
PE Salad Days of 2000-2007…
  • Massive liquidity in the economy
    • 17 rate cuts by the fed 2000 to 2004
    • Low equity risk premium
  • Attractive public market valuations post bubble
  • Permissive lending environment
  • Smaller PE funds, less capital available…. and less competition
buyout mezzanine environment 2000
Buyout Mezzanine Environment2000

Economic Situation

Confidential

4

pe environment today
PE Environment Today
  • Debt markets virtually shut down….
  • Will eventually re-open but….
    • ultra favorable conditions of recent years will not return soon
  • Massive un-invested capital overhang….
buyout mezzanine fundraising has increased 8x since 2003
Buyout & Mezzanine Fundraising Has Increased 8x Since 2003

Buyout & Mezzanine fundraising up 29% through 3Q07, versus 2006

*2007 figures are based on actuals through 3Q07 and estimates for 4Q07

Source: DowJones VentureSource, Buyouts Magazine, Clearstone analysis

Confidential

7

vc fundraising and performance dropped significantly after similar 8x increase
VC Fundraising – and Performance Dropped Significantly After Similar 8X Increase

Source: DowJones VentureSource, NVCA

Confidential

8

buyout mezzanine environment 2008 troubling
Buyout Mezzanine Environment2008….Troubling

Economic Situation

Confidential

9

signs of problems ahead
Signs of Problems Ahead…
  • Leveraged buyouts require robust credit markets
    • That existed the past 7 years…but no longer
  • Banking regulators giving greater scrutiny to leveraged lending practices
  • No takers for leverage loan participations
    • Banks hold nearly $300B of debt needing to be sold!
classic buyout candidates under pressure
Classic Buyout Candidates Under Pressure….
  • Mature companies in mature markets
    • Retail, Manufacturing, Materials, Financials
  • Don’t do we well in slowing economy…signs already evident
  • Shrinking cash flows restrict leverage potential….
  • Defaults rising….driving lenders to demand higher risk compensation
pe firm behaviors driving returns lower
PE Firm Behaviors Driving Returns Lower….
  • Large increases in # and size of PE funds
  • Aggressive deal pricing
      • From 5X to 8-10X cash flow multiples
  • Strong incentives to deploy capital rather than return it
  • Rising % of exits from inter-firm sales
      • 2007: 60% of PE exits done through sale to another PE firm
venture capital environment 2000
Venture Capital Environment2000

Economic Situation

Confidential

15

venture capital fundraising
Venture Capital Fundraising

Venture Capital fundraising down 11% through 3Q07, versus 2006

*2007 figures are based on actuals through 3Q07 and estimates for 4Q07

Source: DowJones VentureSource, Buyouts Magazine, Clearstone analysis

Confidential

17

only the strongest firms survived the post bubble shake out
Only The Strongest Firms Survived The Post-Bubble Shake-Out

Median Fund Size increased 2x

– $100MM in 2000 versus $200MM in 2006

Source: DowJones Venture Capital Industry Report 2007

Confidential

18

attractive conditions ahead
Attractive Conditions Ahead…
  • Venture capital fund commitments flat for past 3 years
    • contra-indicator
  • Early stage valuations stable…
    • while late stage and IPO valuations growing
  • Strong public market appetite for growth stories
    • Recent IPOs in the enterprise and consumer services sectors well received
venture capital environment 2008
Venture Capital Environment2008

Economic Situation

Confidential

20

slide21

More so than earlier tech cycles, private investors are being rewarded for potential break out value at IPO….

more value accruing to venture investors at ipo
More Value Accruing to Venture Investors at IPO

- $ Billions -

Earlier Tech Cycles

New Tech Cycle

*Facebook Pre-Money IPO valuation rumored to be greater than $50B

Confidential

22

why are early stage companies capturing more value
Why Are Early Stage Companies Capturing More Value?
  • Companies are able to hit critical mass faster
    • Impact of Internet, new communication technologies, leveraging managed services
  • Addressing global opportunities earlier in their life cycle
    • From 300M to 2.5 billion consumers
  • Sourcing gains from China and India
  • Capital markets much better informed
    • More willing to factor in growth potential
slide24

It’s a very attractive market for early stage investing….particularly in the enterprise and consumer markets….

extremely favorable trends in the enterprise sector
Extremely Favorable Trends in the Enterprise Sector
  • Post bubble IT austerity has reached practical limits
    • Major upgrades needed to replace outdated computing and communication systems
      • Wireless networks – Meru, Divitas
      • Digital archival and storage – Kazeon, Mimosa
  • Web and digital media opportunities require new technology investments
      • Content monitization – eForce, Rubicon
compelling enterprise 2 0 venture opportunities
Compelling Enterprise 2.0 Venture Opportunities
  • Managed services
      • Unified communications monitoring – Communicado
      • Mobile network access - SoonR
  • Predicative analytics and decision support systems
      • Real time analytics for IT networks - Integrien