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The State of Venture Capital

The State of Venture Capital. March 2, 2002 John Gabbert Sr. Director, Worldwide Research VentureOne Corporation. Three Key Elements for a Robust Venture Ind ustr y. Fundraising Investment Liquidity. Fundraising.

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The State of Venture Capital

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  1. The State of Venture Capital March 2, 2002 John Gabbert Sr. Director, Worldwide Research VentureOne Corporation

  2. Three Key Elements for a Robust Venture Industry • Fundraising • Investment • Liquidity

  3. Fundraising

  4. Venture Capital Fundraising Healthy in 2001Commitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne

  5. But Momentum is SlowingCommitments to Venture Capital Funds Funds Raised ($B) Source: VentureOne

  6. Fundraising Far Outpaces Investment in 2001Fundraising vs. Amount Invested Amount Invested ($B) Source: VentureOne

  7. Fundraising Summary • Commitments to venture capital were flat in 4Q01; however, 2001 fundraising was still well above the norm. • Fundraising is becoming more difficult, especially for newer or unproven funds. • Over half of VC dollars are now in funds greater than $500 M. • Greatest amount of VC money in history available to invest in entrepreneurship.

  8. Investment: Overall

  9. 2001: A Sharp Contrast to 2000’s Boom Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne

  10. Investment Levels Off at Year’s End Equity into Venture-Backed Companies Amount Invested ($B) Number of Deals Source: VentureOne

  11. Median Round Size Gets a Boost in 4Q’01Median Amount Invested Per Round Median Amount Invested ($M) Source: VentureOne

  12. Positively Affecting Later-Stage Rounds Median Amount Invested by Round Class Median Amount Invested ($M) Source: VentureOne

  13. Investment Shifts to Second & Later RoundsDeal Flow by Round Class % of Deals Source: VentureOne

  14. IT Dominates, Healthcare Recaptures Investor InterestEquity Investment by Industry Sector % of Investment Source: VentureOne

  15. IT Investment Still Falling Equity Investment in Information Technology Companies Amount Invested ($B) Number of Deals Source: VentureOne

  16. Communications, Software Are Cornerstones of ITIT Investment by Sector % of Internet Investment Source: VentureOne

  17. Investment: Valuations

  18. 2001 Valuations Fall Below 1999 LevelsMedian Premoney Valuation by Year Median Premoney Valuation ($M) Source: VentureOne

  19. Valuations Recover Somewhat in 4Q’01Median Premoney Valuation Median Premoney Valuation ($M) Source: VentureOne

  20. Later-Round Valuations Boost Overall NumbersMedian Premoney Valuations by Round Class Median Premoney Valuation ($M) Source: VentureOne

  21. Healthcare Valuations Up Significantly Median Premoney Valuations by Industry Median Premoney Valuation ($M) Source: VentureOne

  22. Investment: Regions

  23. Texas Edges Out Boston for #3 Spot2001 Regional Investment in the US Source: VentureOne

  24. Bay Area Investment StabilizesInvestment in Bay Area Venture-Backed Companies Amount Invested ($B) Source: VentureOne

  25. Equity Financing Summary • Equity financing into venture-backed companies leveled off in 4Q’01. • Overall equity investment in 2001 was still the third highest amount on record. • Valuations and median round sizes recovered slightly at year’s end. • Early-stage venture financing has fallen more rapidly than later-stage. • The time between financing rounds is expanding.

  26. Liquidity

  27. M&As Continue to SlipTransactions and Amount Paid in M&As Amount Paid ($B) Number of Transactions Source: VentureOne

  28. IPO Liquidity Up Marginally in 4Q01 … Deals and Amount Raised Through IPOs Amount Raised ($B) Venture-Backed IPOs Source: VentureOne

  29. Liquidity Summary • The IPO and M&A markets for venture-backed companies continued their dramatic declines from the record levels of 1999 and early 2000. • IPO volume in 2001 was at its lowest in years. • The amount paid in M&A transactions declined throughout 2001, falling to the lowest level since 1995. • IPO companies in 2001 were more mature, but the time from initial funding to M&A is still falling.

  30. Conclusions & Implications • The bad news: • Liquidity is extremely difficult • VCs are investing much more slowly and cautiously • Valuations are down across the board • Many VC-funded companies will fail to raise more $ • The good news: • Liquidity windows open and close • VCs do have money to invest • Expectations are much more realistic • Those companies that succeed in raising $ will have more board involvement, better resources, lower costs and less competition • Truly great companies will emerge from this period

  31. More Information For a copy of this presentation, contact corpcomm@ventureone.com or call +1 (415) 538-2658. Email products@ventureone.com for: • VentureSource: Instant access to venture capital intelligence • VentureOne Publications: VentureSource News (daily) and the Venture Capital Industry Report (annual). • Custom Report Services: Comparable Valuation Reports and specialized queries

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