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New Atlantic Ventures. Sweden-US Entrepreneurial Forum September 2011 # sweus. John Backus john@navfund.com @ jcbackus. NAV “At A Glance”. E arly Stage Venture Capital Modest Fund Size: $117m current fund (NAV III) East Coast Focus Top Decile Post-2000 Performance

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new atlantic ventures
New Atlantic Ventures

Sweden-US

Entrepreneurial Forum

September 2011

#sweus

John Backus

john@navfund.com

@jcbackus

nav at a glance
NAV “At A Glance”
  • Early Stage Venture Capital
  • Modest Fund Size:
    • $117m current fund (NAV III)
  • East Coast Focus
  • Top Decile Post-2000 Performance
  • Blue Chip LP Base, 50% from EU
  • Key Difference: Thesis-Led Investors

19 Companies:

Boston (5)

New York City (6)

VA/DC/MD (3)

(CA & WA)

NAV Office

Portfolio company

annual us vc fund raising volatility over the past decade
Annual US VC fund-raisingVolatility over the past decade

► Fund-raising has declined in the United States since 2007.

► 2009 marks the fewest funds raised in 16 years.

► In dollar terms, 2009 was the low point in terms of

dollars raised since 1997, with the exception of 2003.

► 2010 is on pace for another annual decline – only US$6.4

billion raised in 33 funds as of 30 June 2010.

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

slide4

US VC funds raised by stage focusClear shift in dollars toward multi-stage funds as investors seek greater flexibility, growth equity opportunities

501 289 154 91 161 172 166 170 145 76 33

$83.3 $44.8 $ 19.2 $8.9 $20.7 $27.7 $30.3 $37.1 $26.4 $14.5 $6.4

Source: Dow Jones VentureSource;

Ernst & Young Venture Insights

Amount of funds closed (US$b)

Number of funds closed

declining number of vc firms actively investing
Declining number of VC firms actively investing

United States

Bay Area

750 635 568 546 564 529 546 542 539 473 325

Number of firms making 4 or more investments in year

1338 1240 1122 1053 1040 1018 1013 998 989 885 657

Number of firms making 1-3 investments in year

New England

454 377 306 301 340 304 300 302 249 236 150

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

us vc fundraising median fund size
US VC fundraising: median fund size
  • Median fund size has grown with shift to multi-stage and growth equity funds
  • LP flight to quality means that fewer small firms are succeeding in raising new funds

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

why the decline
Why the Decline?
  • Entrepreneurs, LPs & GPs got greedy in the late 1990s
    • VC fund sizes ballooned
    • Too many VCs = too many marginal companies funded
    • Fund sizes drove shift to late stage
    • Exit market dried up in US: 9/11 & 9/08
  • Returns for the decade were flat, on average
  • BUT, many funds small early stage funds did quite well
thesis led approach finds winners in emerging fields
Thesis-Led ApproachFinds Winners in Emerging Fields
    • 5-10 years to “big exits”
    • Need market evolution insight
  • A strong thesis targets leaders in the next wave:
    • Smart entrepreneurs find investors who “get it”
    • Faster decisions
    • More value as board members
  • We sharpen our investment theses over time:
    • As we explore new markets
    • As markets and technologies change
  • “I skate to where the puck is going, not to where it has been”
  • Wayne Gretzky
  • NHL Hall of Fame Player
learning sharpens our thinking
Learning Sharpens Our Thinking
  • We learn as we go deeper
  • Markets evolve
  • Old markets grow stale
  • New markets emerge

NAV III

Prior Funds

Ad-Tech

Social

Media

Digital

Media

Mobile

e-Commerce

Financial

Tech

Security

Customer-Driven Healthcare

SAAS/Software

mobile info tainment reinvented
Mobile: Info-Tainment Reinvented

“Connected Mobile Devices (tablets, smart phones) will transform & disrupt information & entertainment industries.”

  • Pandora for News/Info
  • Benchmark + NEA
  • > 300,000 Users
  • 600 min/user/mo*
  • Software that enables Android tablets
  • 60m tablets in 2011
  • Top-5 seller on Amazon

NAV Companies to Watch

*After first month.

slide11

Technology Wealth Creation / Destruction CyclesNew Companies Often Win Big in New Cycles While Incumbents Often Falter

Mainframe

Computing

1960s

Mini

Computing

1970s

Personal

Computing

1980s

Desktop Internet

Computing

1990s

Mobile Internet

Computing

2000s

NewWinners

NewWinners

NewWinners

NewWinners

Google

AOL

eBay

Yahoo!

Yahoo! Japan

Amazon.com

Tencent

Alibaba

Baidu

Rakuten

IBM

NCR

Control Data

Sperry

Honeywell

Burroughs

Digital Equipment

Data General

HP

Prime

Computervision

Wang Labs

Microsoft

Cisco

Intel

Apple

Oracle

EMC

Dell

Compaq

Note: Winners from 1950s to 1980s based on Fortune 500 rankings (revenue-based), desktop Internet winners based on wealth created from 1995 to respective peak market capitalizations. Source: Factset, Fortune, Morgan Stanley Research.

11

slide12

New Computing Cycle CharacteristicsReduce Usage Friction Via Better Processing Power + Improved User Interface + Smaller Form Factor + Lower Prices + Expanded Services = 10x More Devices

More than Just Phones

Computing Growth Drivers Over Time, 1960 – 2020E

1,000,000

iPad

Smartphone

100,000

Kindle

Tablet

MP3

10,000

Cell phone / PDA

Increasing Integration

1000

Car Electronics GPS, ABS, A/V

10B+ Units???

100

Mobile Video

1B+ Units / Users

100MM+ Units

Home Entertainment

10

Games

10MM+ Units

Wireless Home Appliances

1

1MM+ Units

Note: PC installed base reached 100MM in 1993, cellphone / Internet users reached 1B in 2002 / 2005 respectively;

Source: ITU, Mark Lipacis, Morgan Stanley Research.

12

slide13
Smartphone > PC Shipments Within 2 Years, Global –Implies Very Rapid / Land Grab Evolution of Internet Access

Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 – 2013E

2012E: Inflection Point

Smartphones > Total PCs

Note: Notebook PCs include Netbooks. Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research.

Data and Estimates as of 9/10

13

digital media ad flow to digital
Digital Media: Ad $ Flow to Digital

“$50B in advertising will go digital when new companies deliver the measurable results brand managers expect.”

  • Mobile Lead Generation
  • $15M+ Revenue
  • RRE, Greenhill
  • Brand messages in Captchas, e.g.:
  • Interaction  retention
  • $15M+ bookings

NAV Companies to Watch

slide16

Media Time Spent vs. Ad Spend Still Out of Whack

Internet / Mobile (upside…) vs. Newspaper / Magazine / TV (downside…)

% of Time Spent in Media vs. % of Advertising Spending, USA 2009

~$50B

Global

Opportunity

Note: Time spent data per NA Technographics (2009), ad spend data per VSS, Internet advertising opportunity assumes online ad spend share matches time spent share, per Yahoo!. Source: Yahoo! Investor Day, 5/10.

16

16

e commerce 2 0 complex becomes easy
e-Commerce 2.0: Complex Becomes Easy

“Complex products can be sold online: custom, expensive, and highly-regulated.”

  • High end runway fashion
  • NEA B round
  • $10M run rate after 6 months
  • Daily deals 2.0
  • Mobile-based
  • Better value for all
  • Strong start in 6 markets

NAV Companies to Watch

golden age of e commerce
Golden Age ofE-commerce
  • More consumers buy online (over 70% of internet users)
  • Cheaper to build e-commerce company
  • New business models create new experiences (Groupon)
  • Better marketing tools (social media, e-mail lists, video)
  • Mobile smartphones
healthcare services patients become customers
Healthcare Services: Patients Become Customers

“Unaffordable costs + healthcare reform drive customers to take control of healthcare spending, causing big change.”

  • Real time audits of corporate Rx bills
  • Recurring Revenue
  • $1M bookings/mo.
  • Generic Rx drugs for less than insurance co-pays
  • $15M+ revenue run rate
  • Growing 40%/quarter

NAV Companies to Watch

the rise of health care consumerism
The Rise of Health Care Consumerism
  • Consumers seeking lower cost & better care
  • New ways of practicing medicine emerging
  • Profit sanctuaries being destroyed

Huge waste becomes opportunity when consumers gain control

policy conclusions
Policy Conclusions
  • Build the Ecosystem
    • Need lots of acquirors
    • Need lots of business partners
    • Need big companies to hire from
      • Great training programs
      • Domain expertise
    • Education system focused on entrepreneurs
    • Entrepreneur must be seen as a successful career
    • Pension, health, benefits must follow entrepreneur
  • Encourage Entrepreneurs
    • Lower tax rates: capital gains
    • Lower tax rates: stock options
    • Remove stigma of failure
    • Locate where partners are
  • Encourage LPs
    • Relief from Basel 3 & AIFM
    • Tax advantage to offset illiquidity
    • Robust secondary markets
    • Solve the “bite size” problem