robert ackerman 2010 ibf opening remarks
DESCRIPTION
Opening remarks at the 12th Annual Corporate Venturing & Innovation Partnering Conference. Presentation gives an overview of the 2009 and what 2010 has in store for Venture Capital Firms.TRANSCRIPT
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
““I Woke Up and it WasnI Woke Up and it Wasn’’t t A Nightmare After AllA Nightmare After All””
www.allegiscapital.com Copyright 2010 © Allegis Capital
12th Annual Corporate Venturing & Innovation Partnering Conference
February 23, 2010
Conference ChairmanConference ChairmanRobert R. Ackerman, Jr.Robert R. Ackerman, Jr.Managing Director Managing Director -- Allegis CapitalAllegis Capital
Opening RemarksOpening Remarks
2
2009 – It Started Bad…
The Capital Well Dried Up for Start-Ups$17.7 billion invested in 2,795 deals (1997 Level)$28.1B in 08’ and $30.5B in 07’When Capital did Flow – It Was Very Very Expensive
And the River was Damned for Venture Firms$15.2 billion committed to Venture Partnership
120 Funds Raised – 80% of them Established Players$28.5B in 08’ and $36.1B in 07’
Venture Reactions:Preserve Capital at All Costs (Life and Death)
Reserves for Existing Portfolio CompaniesTriage to free up Capital
Source: Dow Jones VentureOne/Ernst &Young
Copyright 2010 © Allegis Capital
3
… And It Did Not Get Much Better
Thirteen (13) Venture-backed IPOs in 09’(6) in 08’ -- (86) in 07’ (Average Offering: $150M in 09’)1990-2000: 1776 IPOs: 56% of Exits2001-2009: 405 IPOs: 13% of Exits
M & A Barely Keeps Industry on Life Support262 Venture-backed exits in 09’ (348 in 2008)Median M & A Proceeds: $30MAverage M & A Deal Size: $144M
10 Year Venture Returns –The News Finally Hits
1999 “Peak Returns” about to drop from the 10-year avg.IRR 17.2% (3/31/08) IRR 19.3% (6/30/07)IRR 8.4% (9/30/09)
Venture Still Out Performed Most Investment IndexesSource: Dow Jones VentureOne/Ernst &Young
Copyright 2010 © Allegis Capital
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Capital Capital Investments DropInvestments Drop
StartStart--Ups Just Got a Lot HarderUps Just Got a Lot Harder
5PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters Copyright 2010 © Allegis Capital
MoneyTree Total Investments: 1980 – 2009
0.5 1.1 1.5 2.8 2.8 2.6 2.9 3.2 3.2 3.2 2.6 2.1 3.4 3.5 3.97.4
10.614.2
19.8
51.3
100.5
38.6
21 19.122 23
26.330.5
28
17.7
$0
$20
$40
$60
$80
$100
$120Annual Venture Capital Investments 1980 to 2009$ in Billions
6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1284 1221 1009 990 845 856 696 728 708 743 724 792 731 865 699 853 737 839 802 830 881 980 920 965 875 1063 1011 1078 1016 1064 995 910 632 680 689 794
Number of Deals by Quarter
MoneyTree Total Investments: Q1 2001 – Q4 2009$1
2.3
$6.5
$4.1
$5.2
$5.0
$6.3
$7.4 $7.7
$3.4
$10.7
$5.9
$4.8
$6.1
$6.3 $7
.1
$7.3
$7.4
$4.2
$7.9
$4.4 $4.7
$4.8
$5.9 $6
.6
$7.7
$7.1
$5.1
$7.7
$4.3
$5.5 $5.8
$5.8 $6.3
$8.0
$5.9
$5.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4$ in Billions
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Capital Inflows Capital Inflows Under StressUnder Stress
What Have You Done for What Have You Done for Me Lately?Me Lately?
8
Venture Capital Fundraising
Year First Time Funds Follow-On Funds Total Number of Funds VC Raised ($M)
2004 63 155 218 19,154.4
2005 67 175 242 28,962.7
2006 56 186 242 31,964.9
2007 61 189 250 36,131.4
2008 49 174 223 28,571.3
2009 22 98 120 15,220.2
Data current as of January 11, 2010 Source: Thomson Reuters & National Venture Capital Association
Q1’ 08 12 12 12 12
Q2’ 08 22 22 22 22
Q3’ 08 14 14 14 14
Q4’ 08 11 11 11 11
Q1’ 09 4 4 4 4
Q2’ 09 8 8 8 8
Q3’ 09 7 7 7 7
Q4’ 09 7 7 7 7
9
Other indices at September 30, 2009
DJIA 15.8 -7.4 -3.3 1.8 1.6 8.7 9.2
NASDAQ Composite 15.7 1.5 -2.0 2.3 -2.5 7.0 7.8
S&P 500 15.6 -6.9 -5.4 1.0 -0.2 7.6 8.0
US Venture Capital Index
For the Period Ending Qtr. 1
Year3
Years5
Years10
Years15
Years20
Years
September 30, 2009 2.3 -12.4 1.3 4.9 8.4 36.6 23.1
June 30, 2009 0.2 -17.1 1.3 5.7 14.3 36.3 22.7
September 30, 2008 -2.9 -0.9 10.2 10.7 40.2 33.3 22.2
(Investment Horizon Performance through 09/30/2009)
Source: Cambridge Associates LLCNote: Because the US Venture Capital index is cap weighted, the largest vintage years mainly drive the index’s performance.
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Where Are The $’s Going
11
Investments by Industry: Full Year 2009
$36.1
$102.4
$172.2
$253.3
$300.5
$341.6
$362.0
$364.8
$558.8
$716.0
$771.6
$1,076.9
$1,177.0
$2,304.8
$2,502.3
$3,096.4
$3,543.3
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500
Other
Healthcare Services
Retailing/Distribution
Business Products and Services
Electronics/Instrumentation
Computers and Peripherals
Consumer Products and Services
Financial Services
Telecommunications
Networking and Equipment
Semiconductors
IT Services
Media and Entertainment
Industrial/Energy
Medical Devices and Equipment
Software
Biotechnology
Visit www.pwcmoneytree.com for Industry definitions
$ in Millions
Industry# of
Deals% Change $from 2008
Biotechnology 406 -18.57%Software 619 -39.83%Medical Devices and Equipment 309 -26.58%Industrial/Energy 232 -49.69%Media and Entertainment 251 -31.65%IT Services 203 -40.80%Semiconductors 118 -53.10%Networking and Equipment 93 -5.27%Telecommunications 140 -66.56%Financial Services 52 -27.16%Consumer Products and Services 81 -16.87%Computers and Peripherals 59 -25.37%Electronics/Instrumentation 60 -47.66%Business Products and Services 81 -47.63%Retailing/Distribution 31 -27.45%Healthcare Services 33 -43.94%Other 27 84.52%
2009 Total: $17,680.2 million in
2,795 deals
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Visit www.pwcmoneytree.com for Industry definitions Copyright 2010 © Allegis Capital
12
Investments by Industry –Quarterly Percent of Total U.S. Investments
18.6
9%
17.8
7%
10.7
9%
15.9
5%
7.16
%
19.0
4%
19.8
3%
14.3
4%
10.0
3%
6.50
%
23.1
7%
16.2
3%
15.7
8%
10.9
7%
3.06
%
18.0
2%
15.4
5%
12.5
2%
18.3
8%
7.65
%
20.1
8%
19.1
1%
14.3
4%
11.3
5%
8.75
%
0%
5%
10%
15%
20%
25%
30%
Biotechnology Software Medical Devices and Equipment
Industrial/Energy Media and Entertainment
(% of Total Dollars)
Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09
Top 5 Industries – Q4 ‘08 to Q4 ‘09
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
13
Investments by Stage of Development: FY 2009
$1,650.3
$4,626.8
$5,484.3
$5,918.9
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000
Startup/Seed
Early Stage
Expansion
Later Stage
Stage of Development
# of Deals
% Change in $ Amount from 2008
Later Stage 799 -44.45%Expansion Stage 801 -47.23%
Early Stage 883 -13.02%Startup/Seed 312 1.62%
Total 2,795 -36.84%
$ in Millions 2009 Total: $17,680.2 million in 2,795 deals
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
14
Investments by Sequence of Financing: FY 2009
$2,331.9
$2,594.2
$2,728.8
$3,350.3
$6,675.0
$0 $2,000 $4,000 $6,000 $8,000 $10,000
Fourth
Third
Second
First
5th and Beyond
2009 Total: $17,680.2 million in 2,795 deals$ in Millions
Financing# of
Deals
% Change in$ Amount from
Q3 20095th and Beyond 807 -26.77%
First 725 -44.64%Second 539 -47.37%
Third 414 -40.74%Fourth 310 -28.52%Total 2,795 --36.84%
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
15
First Sequence Financing – Number of Deals 38
4
224
176 19
6
237
275
264
333
159
327
236
183
252
253
334
372
333
168
273
183
184
224
262
321 330
289
168
235
188 21
7
259 28
3 299
365
262
230
0
100
200
300
400
500
2001 2002 2003 2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4
First Sequence Deals$ in Billions
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
16
First Sequence Financing – Investment Amount $2
.7
$1.2
$0.7 $1
.0
$1.4
$1.4 $1
.6 $1.8
$0.7
$1.9
$1.2
$1.0 $1
.3 $1.5 $1
.7
$1.7
$1.6
$0.8
$1.2
$1.0
$1.0 $1
.2 $1.5 $1
.6 $1.9
$1.5
$0.7
$1.2
$0.8 $1
.1 $1.2 $1
.4 $1.5
$2.1
$1.2
$1.1
$0
$1
$2
$3
$4
2001 2002 2003 2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4
First Sequence Investments$ in Billions
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
17
Stage of Development –Quarterly Percent of Total First Sequence Dollars
19.7
7%
42.7
5%
21.6
3%
15.8
6%19.1
0%
42.6
0%
18.9
5%
19.3
5%
48.7
6%
26.8
8%
19.2
9%
5.07
%
21.8
4%
36.5
0%
19.9
5%
21.7
0%
19.5
7%
45.2
0%
21.3
5%
13.8
7%
0%
10%
20%
30%
40%
50%
60%
Startup/Seed Early Stage Expansion Later Stage
Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09
(% of first sequence dollars)
Stage Development – Q4 2008 to Q4 2009
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
18
Stage of Development –Quarterly Percent of Total First Sequence Deals
27.1
0%
44.6
6%
16.4
1%
11.8
3%
26.4
2%
45.2
8%
14.4
7%
13.8
4%
30.9
5%
43.4
5%
17.8
6%
7.74
%
24.4
0%
45.8
3%
19.6
4%
10.1
2%
23.9
1%
51.3
0%
17.3
9%
7.39
%
0%
10%
20%
30%
40%
50%
60%
Startup/Seed Early Stage Expansion Later Stage
Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09
Stage Development – Q4 2008 to Q4 2009(% of first sequence deals)
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
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Where’s The Action
Silicon Valley Dominates, but…
20
HAWAII
MAUI
KAHOOLAWE
LANAI
MOLOKAI
OAHU
KAUAI
NIIHAU
Investments by Region: Full Year 2009
Texas$644.6 M111 Deals
4% of US total
Silicon Valley$6,983.9 M863 Deals
40% of US total
New England$2,113.4 M348 Deals
12% of US total
Midwest$721.1 M219 Deals
4% of US total
South Central$23.8 M37 Deals
0% of US total
Northwest$704.8 M132Deals
4% of US totalSacramento/N. CA$17.0 M8 Deals
0% of US total
San Diego$903.2 M107 Deals
5% of US total
Southeast$985.9 M137 Deals
6% of US total
Southwest$313.8 M68 Deals
2% of US total
LA/Orange County$953.7 M159 Deals
5% of US total
DC/Metroplex$539.6 M117 Deals
3% of US total
NY Metro$1,415.9 M247 Deals
8% of US total
Philadelphia Metro$423.8 M89 Deals
2% of US total
North Central$368.9M58 Deals
2% of US total
2009 Total Investments - $17,680.2 million in 2,795 deals
Colorado$528.8 M71 Deals
3% of US total
AK/HI/PR$7.1 M2 Deals
0% of US total
Upstate NY$18.0 M13 Deals
0% of US total
Unknown region totals not included PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
21
Investments by Region: Full Year 2009
Unknown region totals not included
Region# of
Deals% Change $ from 2008
Silicon Valley 863 -34.90%New England 348 -36.09%
NY Metro 247 -28.32%Southeast 137 -19.13%
LA/Orange County 159 -52.54%San Diego 107 -24.21%Midwest 219 -43.60%
Northwest 132 -34.52%Texas 111 -49.94%
DC/Metroplex 117 -45.20%Colorado 71 -36.84%
Philadelphia Metro 89 -43.78%North Central 58 -40.30%
SouthWest 68 -32.71%South Central 37 -69.76%
Upstate NY 13 -80.07%Sacramento/N. Cal 8 -75.33%
AK/HI/PR 2 -66.22%Total 2,795 -36.84%
2009 Total: $17,680.2 million in
2,795 deals
$ in Millions
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
22
Investments by Region –Quarterly Percent of Total U.S. Investments
34.7
2%
13.6
3%
7.92
%
3.37
%
5.31
%
38.5
3%
12.9
4%
12.2
2%
2.71
% 6.87
%
33.7
1%
11.7
1%
6.62
%
6.05
%
4.43
%
46.0
4%
10.8
1%
5.08
%
5.08
%
4.86
%
38.3
1%
12.6
5%
9.29
%
5.98
%
5.74
%
0%
10%
20%
30%
40%
50%
Silicon Valley New England NY Metro San Diego LA/Orange County
Q4 '08 Q1 '09 Q2 '09 Q3 '09 Q4 '09
Top U.S. Regions Q4 ‘08– Q4 ‘09
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Copyright 2010 © Allegis Capital
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Heading For The Heading For The ““ExitsExits””
No way OutNo way Out
24
Venture Capital Fundraising
Date Number of IPOs*
Total Venture-Backed Offering
Amount ($M)
Average Venture-Backed Offering
Amount ($M)
Total Number of Venture-backed
M&A DealsAverage M&A
Deal Size ($M)**
2005 57 4,485.0 78.7 350 105.7
2006 57 5,117.1 89.8 375 116.0
2007 86 10,326.3 120.1 378 175.5
2008 Q1 5 282.7 56.6 108 116.3
2008 Q2 0 0.0 0.0 87 123.0
2008 Q3 1 187.5 187.5 89 96.3
2008 Q4 0 0.0 0.0 64 132.8
2008 6 470.2 78.4 348 114.9
2009 Q1 0 0.0 0.0 63 46.9
2009 Q2 5 720.7 144.1 64 197.7
2009 Q3 3 572.1 190.7 68 57.4
2009 Q4 5 649.3 129.9 67 215.9
2009 13 1,942.1 149.4 262 144.2
* Includes all companies with at least one U.S. VC investor that trade on U.S. exchanges, regardless of domicile**Only accounts for deals with disclosed valuesSource: Thomson Reuters and National Venture Capital Association Copyright 2010 © Allegis Capital
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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So, What’s It All Mean…
26
Summary
Significant Reduction in the Availability of Venture CapitalStart-Ups (Series A) will need to be “perfect”Valuation based upon the Net Present Value of an Identified Exit PathSmaller Funds become COOL again (tied to M & A exits)Partnering is back in vogue
Start-Ups Need to Rethink their Capitalization PlansCapital Efficiency is the Watch WordCost of Failure is TerminalNeed to Rethink Distribution, Manufacturing, Go To Market PlansLeverage Leverage Leverage
Venture Industry Emergence of New Industry Leaders in tune with timesIt remains tough until the returns are back
Corporation Investors are well Positioned to “Bridge the Gap”
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Looking Forward….
28
The VC Environment…The VC Industry
In for a Period of Significant Recalibration & Restructuring (3-4 Years)Successful firms will focus on “old fashioned VC” or become Asset ManagersMaterial reduction in the number of venture firms (30-50%?)When all is Said and Done – A Healthier Environment
For Start-Up CompaniesInnovation is Alive and Well but the Bar for Funding is a Lot HigherPartnerships become Increasing ImperativeBetter Ideas, Stronger Teams, Greater Discipline will get Funded
IronPort was started in 2001 and Funded by Allegis 2002: Cisco purchased in 2007 for $830M
Indicators are for a Period of Greater Return and SuccessCorporate Venture Investors
Competition continues to AccelerateStart-Up Companies are More Likely than Ever to Seek Corporate PartnershipsSplit Personality – Past Failures versus Future ImperativesTime to Re-Visit PARTNERING with the Experienced Venture Firms (LEVERAGE)
The Window is Wide Open for Corporate Investors
29
Planning for Success
Looking to Exits – Assume there are NO IPOsYou have no visibility into the next IPO market
You have even less control or influenceM & A remains a viable path to Liquidity – IF YOU ARE CREATING VALUE
Corporate M & AEmergence of the Private Equity Buyer
Control the Fundamentals for Profitable ExitsSolve “Real” ProblemsWatch Your Cost BasisCapital Efficiency is Critical
Syndicates are EssentialGreat Companies don’t Fail – they run out of CASHPreemptively Recapitalize When Necessary or the Opportunity Presents ItselfStrong Syndicates are CRITICAL – Not all Co-Investors are Equal
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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Profiting from Turmoil…
31
The Allegis Playbook…
Exploit the Market Downturn with Established Companies
Take Advantage of Financing Difficulties for Quality CompaniesProvide Capital when others Can’tNearer term exits
Actively Maintain Seed & Early-Stage Investment Focus Create “Value” from “Ideas”Control the Fundamentals for Profitable M & A exitsGreatest leverage to generate returnsSyndicate
Leverage Corporate PartnershipsLower “GO TO MARKET” risks/costsInfrastructure to Accelerate Growth as Economies Stabilize
32
The Allegis Playbook…
Get Ahead of the Financing Crisis“Time is not your Friend”Pro-actively re-capitalize companies to strengthen syndicates“Interim” Valuations are just that - INTERIM
Anticipate the Market Recovery –Don’t Wait for It
What sectors remain strong (Security)Where can we improve efficiency in an existing market (Supply Chain)Where can we create value in a Down Economy“Is Now the Time to Start this Company”?
Pick Your Partners very CarefullyFirms and Partners are going to Disappear
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
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It’s a Great Time to Build a Portfolio!
C O M P E T I T I V E A D V A N T A G E T H R O U G H A C T I V E C O R P O R A T E P A R T N E R I N G T M
Have a Great Conference
Conference ChairmanConference ChairmanRobert R. Ackerman, Jr.Robert R. Ackerman, Jr.Managing Director Managing Director -- Allegis CapitalAllegis Capital
www.allegiscapital.com