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					          A Venture Capital   !
          Revival!
          Is Upon Us



R .I.P.
RT @MarkTwain The reports of my death have
        been greatly exaggerated.





C L E A R S T O N E
             William Quigley
                                   Managing Director

         10 Years ago…

         The decade began on a high note… but quickly
           evolved into extraordinary difficult times."




C L E A R S T O N E
                            William Quigley
                                                   Managing Director

Unstable Situation "
Venture Capital Environment - Circa 2000/2001          "

                                2000 / 2001 
         Trend Direction…


             Valuations
          Very high
                    Falling


     Capital availability
       Substantial
         Beginning to tighten


    Fund commitments
        $83B & Big Overhang
             Shrinking



      # of Active Firms
             1338
          At a high but going down


       Tracking index –
              NASDAQ
                4000
                  Falling rapidly



  Technology spending
         Historically High
          Dropping quickly

 VC Fundraising and Performance "


 Plummet After a 7X Increase in Capital in Just 4 years


         $	
  90	
  
            80	
  
                                                                                                	
  $83	
  	
  
            70	
  
            60	
  
            50	
  
$B	
  




                                                                              	
  $57	
  	
  
            40	
                                                                                                  	
  $45	
  	
  
            30	
  
            20	
                                            	
  $27	
  	
  
            10	
                          	
  $17	
  	
  
                                                                                                                                    	
  $19	
  	
  
                       	
  $12	
  	
                                                                                                                   	
  $9	
  	
  
               0	
  
                  1996	
                 1997	
             1998	
            1999	
            2000	
            2001	
            2002	
            2003	
  

Source: DowJones VentureSource, NVCA.
    In the 2000s"
    Venture Capital Exits Shifted from IPOs to Less Valuable M&A



                  VC	
  Exits:	
  ‘91	
  –	
  ‘00	
  
                                                          VC Exits: ‘01 –
                                                        VC	
  Exists:	
  	
  ‘01	
  –	
  ‘‘09
                                                                                          09	
  


                                                                            IPO	
  
                                                                            12%	
  
                M&A	
  
                42%	
  
                                          IPO	
  
                                          58%	
  

                                                                 M&A	
  
                                                                 88%	
  




Source: NVCA.
           10 Years Later….



C L E A R S T O N E
    William Quigley
                          Managing Director

The market is now poised for "

 breakout
 performance. 

Conditions have improved
  considerably helped by a "
reduction in capital and firms.

   Venture Capital Fundraising"
   Has Been in Decline Since 2007


               $90	
  
               $80	
  
               $70	
  
                          	
  $83	
  	
  
               $60	
  
               $50	
  
      $B	
  




               $40	
                        	
  $45	
  	
  

               $30	
                                                                                                                                   	
  $37	
  	
  
                                                                                                                                     	
  $30	
  	
  
               $20	
                                                                                               	
  $28	
  	
  
                                                                                                 	
  $21	
  	
                                                           	
  $27	
  	
  
               $10	
                                          	
  $19	
  	
                                                                                                                	
  $15	
  	
  
                                                                                	
  $9	
  	
                                                                                                                 	
  $12	
  	
  
                 $0	
  
                     2000	
   2001	
   2002	
   2003	
   2004	
   2005	
   2006	
   2007	
   2008	
   2009	
   2010	
  




Source: DowJones VentureSource.
    Venture capital funding
commitments to IT
are even less than meets the eye.



      Because……

Much of the recent LP funding to
  venture capital has gone into 




       Cleantech

    Cleantech Share "
    Venture Investments Up 8X





                Cleantech investments have crowded-out
                other sectors, further decreasing funds
                directed towards IT investing.

Source: NVCA.
The US economy
   has grown
 almost 50%
   since 2000 "




        yet…

       less venture
There is

      capital under
 management today than there
      was 10 years ago.

       Venture Capital Assets Under Management Are "
       Lower Today Than They Were a Decade Ago


                300	
                                                    $262	
     $270	
     $277	
  
                                        $253	
     $253	
     $254	
                                      $255	
  
                250	
       $225	
  
                                                                                                                     $204	
  
                200	
                                                                                                           $179	
  

                150	
  
     $B




                100	
  
                  50	
  
                    0	
  
                            2000	
   2001	
   2002	
   2003	
   2004	
   2005	
   2006	
   2007	
   2008	
   2009	
  



                                       Venture capital investments are now outpacing new funding
                                       commitments by LPs, draining the pool of investable capital."



Source: NVCA.
        Venture Capital Fundraising As a % of GDP "
        Has Rapidly Fallen 

                   $16	
                                                                                     	
  $14.1	
   $14.4	
                 $14.7	
     1.0%	
  
                                                                                                 $13.4	
                               $14.1	
  
                   $14	
  
                                                               $11.1	
     $11.9	
   $12.6	
                                                                   0.8%	
  
                   $12	
                 $10.3	
   $10.6	
  
                             $10.0	
  
                   $10	
                                                                                                                                       0.6%	
  
          $T	
  




                    $8	
  
                    $6	
                                                                                                                                       0.4%	
  
                    $4	
  
                                                                                                                                                               0.2%	
  
                    $2	
  
                    $0	
                                                                                                                                       0.0%	
  
                             2000	
   2001	
   2002	
   2003	
   2004	
   2005	
   2006	
   2007	
   2008	
   2009	
   2010	
  


                                              Venture Capital fundraising as a % of GDP
                                              has been declining since 2000.

Source: DowJones VentureSource, Bureau of Economic Analysis.
                       Consider…



C L E A R S T O N E
            William Quigley
                                    Managing Director

American Reinvestment and
   Recovery Act of 2009




$787 Billion	
  
New Commitments To Venture
   Capital Funds in 2009?




  $15 Billion	
  
                But After a Long Shake Out, "
    Attractive Conditions Ahead…"
•  Venture capital fund commitments down for last 3 years

    –  Positive 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 Firms"
                 Only the Strongest Survived the Post-Bubble Shake-Out


                                                        Ac=ve	
  Informa=on	
  Technology	
  Investors	
  
                                  1600	
  
  #	
  of	
  Ac=ve	
  Firms	
  




                                  1400	
  
                                  1200	
  
                                  1000	
      712	
     514	
     398	
     381	
  
                                   800	
                                              449	
     405	
     416	
     426	
     375	
     313	
     >3	
  Deals/yr	
  
                                   600	
  
                                   400	
                726	
     724	
     672	
  
                                                                                                                                                  <=3	
  Deals	
  
                                              626	
                                   591	
     613	
     597	
     572	
     614	
     572	
  
                                   200	
  
                                     0	
  

                                             2000	
   2001	
   2002	
   2003	
   2004	
   2005	
   2006	
   2007	
   2008	
   2009	
  


                                    Active Investors Down"
                                    – 712 active investors in 2000 versus 313 in 2009, a 56% decline."
                                    Average Fund Size Increased"
                                    – $165M in 2000 versus $200MM in 2009."


Source: DowJones VentureSource.
     Venture-Backed IPOs Will Return to Pre Financial
     Crisis Levels in 2011

                                       100	
  
                                                                             86	
  
                                                                                                                                       80	
  
         No. of Venture-Backed OPO’s




                                         80	
                                                                              72	
  
                                                    57	
          57	
  
                                         60	
  

                                         40	
  

                                         20	
                                                                12	
  
                                                                                            6	
  
                                           0	
  
                                                   2005	
        2006	
     2007	
       2008	
            2009	
         2010	
     2011E	
  


                                                              A new generation of large market cap tech
                                                              companies will increase the field of acquirers.

Source: NVCA and Clearstone analysis.
Selected IPO’s shown in 2011. LinkedIn and Pandora have filed for IPO. Facebook and Groupon IPO are market speculation.
VC Environment Today"
Attractive Conditions

                                   Economic Situation"

                          2011                   Trend Direction…
          Valuations     Moderate              Rising in Certain Growth
                                                         Markets

  Capital availability   Adequate                        Stable


                                               Stable but trending down
 Fund commitments         $~12B

                                                   1/2 of the high &
    # of Active Firms      ~300
                                                       shrinking

    Tracking index –                            Stable with IPO market
                           2800
           NASDAQ                                        open

                                               Good and rising in some
Technology spending       Stable
                                                      sectors
                     “the
Have you heard the maxim

   venture model is
    broken” in the last 6
            months?

That question was really asking
  “are VCs being
 rewarded for their
  work anymore?”

The Answer?


  YES!

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


 Lets look back at the so called
  venture capital golden age…..

          The Golden Age



C L E A R S T O N E
   William Quigley
                         Managing Director

How were the iconic tech
    companies of the past
  valued when they
    went public? 

    IPO Date: 1986

CY 1986 Revenues: $198M

CY 1987 Revenues: $346M

IPO Valuation? 



$650M

~1.8X Revenue

    IPO Date: 1990

CY 1990 Revenues: $69M

CY 1991 Revenues: $183M

IPO Valuation? 



$225M

~1.25X Revenue

    IPO Date: 1997

CY 1997 Revenues: $148M

CY 1998 Revenues: $610M

IPO Valuation? 



$440M

~0.7X Revenue

    IPO Date: 1999

CY 1999 Revenues: $103M

CY 2000 Revenues: $647M

IPO Valuation? 



$1.5B

~2.2X Revenue

    IPO Date: 1989

CY 1989 Revenues: $64M

CY1990 Revenues: $102M

IPO Valuation? 



$73M

~0.7X Revenue

 How do the Golden Age
  companies compare to 


 Today’s leading
tech companies?

More Value Accruing to Venture Investors, "
Not Public Shareholders

                                                                                  $70
       $70

       $60
                     Pre-Money IPO Valuations
       $50
                      Public investors
                                                              $40
       $40       participated in 99% of the
  $B




                  terminal value of these
       $30
                         companies
       $20
                                                 $12
       $10
             $0.23         $0.44     $.065
        $0
             Cisco        Amazon    Microsoft   VMware      Google            Facebook




                     Earlier Tech                        New Tech
                       Cycles                              Cycle
                                                         Source: Facebook Pre-Money IPO valuation $70B per
                                                         SharesPost private market exchange – February 2011.
                      IPO Valuations Now Exceed the Level "
                      Reached During the Tech Bubble


                      $	
  1200	
  
                        1000	
  
                          800	
  
                                                                                                                               15	
  
  $	
  Millions	
  




                          600	
                                                                                       12	
  
                                                                   11	
  
                          400	
          9	
   9	
   9	
   9	
              9	
   8	
   8	
                                             9	
   8	
   8	
   10	
   9	
   10	
   10	
  
                                                                                              7	
             7	
  
                                                                                                      5	
  
                          200	
  
                               0	
  
                                       1990	
   1992	
   1994	
   1996	
   1998	
   2000	
   2002	
   2004	
   2006	
   2008	
  

                                                    Mean	
  Company	
  Age	
  at	
  IPO	
                             Mean	
  Pre-­‐Money	
  ValuaKon	
  


                                                   Mean pre-money IPO valuations of venture backed companies have
                                                   increased at a 16% CAGR since 1990, while company age at IPO
                                                   has remained relatively even.
Source: NVCA.
So why are early
stage companies
 capturing more
     value?

                           3

                       Things Have

                        Changed





C L E A R S T O N E
                  William Quigley
                                        Managing Director

     1.  Internet Growth

     Internet Companies Can Reach Critical Mass Faster

     % Global Users
                                          2000	
  vs.	
  2010	
  Number	
  of	
  Internet	
  Users	
  (millions)	
  
                                                    	
  22.5	
  	
  
21.4%                     China*	
                                                                                                       	
  420.0	
  	
  
                                                                                                	
  124.0	
  	
  
12.2%          United	
  States	
                                                                                   	
  239.2	
  	
  
                                                                	
  47.1	
  	
  
  5.0%                      Japan	
                                                    	
  99.1	
  	
  
                                            	
  5.0	
  	
  
  4.1%                        India	
                                          	
  81.0	
  	
  
                                              	
  5.0	
  	
  
  3.7%                     Brazil*	
                                       	
  72.0	
  	
                                               2000	
  
                                                        	
  24.0	
  	
                                                                  2010	
  
  3.3%                Germany	
                                              	
  65.1	
  	
  
                                           	
  3.1	
  	
  
  3.0%                     Russia	
                                      	
  59.7	
  	
  
                                                    	
  15.4	
  	
  
  2.6%                           UK	
                                	
  51.4	
  	
  
                                                	
  8.5	
  	
  
  2.3%                     France	
                              	
  44.6	
  	
  
                                                    	
  19.0	
  	
  
  2.0%           South	
  Korea	
                            	
  39.4	
  	
  
Source: Internet World Stats. 2010 data as of June 2010
*China figures do not include SAR Hong Kong, SAR Macao and Taiwan. Brazil data for 2009
        2. Capital Markets Better Informed

        Proliferation of technology specialists in the public markets


                                                                           Hedge	
  Fund	
  Industry	
  Growth	
  
   2.0	
                                                                                                                                                                                                                                 	
  12,000	
  	
  
   1.6	
                                                                                                                                                                                                                                 	
  10,000	
  	
  
                                                                                                                                                                                                                                         	
  8,000	
  	
  
   1.2	
  
                                                                                                                                                                                                                                         	
  6,000	
  	
  
   0.8	
  
                                                                                                                                                                                                                                         	
  4,000	
  	
  
   0.4	
                                                                                                                                                                                                                                 	
  2,000	
  	
  
   0.0	
                                                                                                                                                                                                                                 	
  -­‐	
  	
  
             1990	
  
                        1991	
  
                                   1992	
  
                                              1993	
  
                                                         1994	
  
                                                                    1995	
  
                                                                               1996	
  
                                                                                          1997	
  
                                                                                                     1998	
  
                                                                                                                1999	
  
                                                                                                                           2000	
  
                                                                                                                                      2001	
  
                                                                                                                                                 2002	
  
                                                                                                                                                            2003	
  
                                                                                                                                                                       2004	
  
                                                                                                                                                                                  2005	
  
                                                                                                                                                                                             2006	
  
                                                                                                                                                                                                        2007	
  
                                                                                                                                                                                                                   2008	
  
                                                                                                                                                                                                                              2009	
  
                                                                               Number	
  of	
  Hedge	
  Funds	
                                                         $AUM	
  Trillions	
  

                                   More hedge funds = more specialized public investors who
                                   understand the growth prospects of tech companies.

Source: Hedge Fund Research.
            3. Going Global, Faster

            Start-ups Expanding Offshore Earlier in their Lifecycle



                                                                                                                                                                               	
  $5.7	
  	
  

                                                                                                                                                	
  $1.2	
  	
  


                                                                                                                                                2000	
                         2010	
  
                                                                                                                                                                   China	
  GDP	
  


                                                                         	
  $2.0	
  	
  	
  



                                       	
  $0.6	
  	
  


                                                                                                                             	
  $1.4	
  	
  
                                       2000	
                            2010	
  
                                                          Brazil	
  GDP	
  
                                                                                                	
  $0.5	
  	
  



                                                                                                2000	
                         2010	
  
                                                                                                                   India	
  GDP	
  




                                                 Groupon	
  already	
  has	
  35	
  interna=onal	
  offices!	
  	
  
$	
  Trillions	
  
Source: International Monetary Fund.
A Venture Capital Revival Is Upon Us 

•  Conditions are better today for private investors
   than they have been in over a decade

       •  Fewer VC investors are putting capital to work

       •  Public investors are shifting their allocations back to
          emerging growth stories   


•  This is not a repeat of the dot com and telecom
   bubbles circa 1999-2000

       •  Today’s tech cycle leaders have global reach and
          hyper attractive economics


•  A new era technology start-up era has emerged

       •  Companies are scaling faster and accruing value
          sooner than ever before

So what will drive venture
   returns this decade?
•    Overallocated to right sectors

•    The best funds are sector funds

•    IPO market will be healthy

•    New sources of liquidity like second market

 The Venture Capital Model Will Evolve 


•  Greater liquidity to LPs provided by an increasingly
   active secondary position market


•  Shortening of the VC investment cycle. Funds will shift
   from 5 year investment terms to 3 years


•  Growth in sector focused funds

                       Mobile


C L E A R S T O N E
             William Quigley
                                   Managing Director

                       Mobile is a Burgeoning Market, Driven by
                                 Smartphone Sales and…

                                             Apple	
  iPhone:	
  Cumula=ve	
  Units	
  Shipped	
  
                 	
  100	
  	
  
                      	
  90	
  	
  
                      	
  80	
  	
  
                      	
  70	
  	
  
                      	
  60	
  	
  
  Millions	
  




                      	
  50	
  	
  
                      	
  40	
  	
                                                                   iPhone	
  
                      	
  30	
  	
  
                      	
  20	
  	
  
                      	
  10	
  	
  
                           	
  -­‐	
  	
  




Source: Apple company filings
                                            …Tablet Proliferation


                                 2010	
  –	
  2015	
  Tablet	
  Sales	
  and	
  Users	
  (Millions)	
  
            50	
                                                                                                                90	
  
                                                                                                                                80	
  
            40	
                                                                                                                70	
  
Tablet PC




                                                                                                                                         Tablet PC
                                                                                                                                           Users
  Sales




                                                                                                                                60	
  
            30	
  
                                                                                                                                50	
  
                                                                                                                                40	
  
            20	
  
                                                                                                                                30	
  
            10	
                                                                                                                20	
  
                                                                                                                                10	
  
              0	
                                                                                                               0	
  
                      2010	
            2011	
                2012	
            2013	
        2014	
                 2015	
  
                                     Total	
  Tablet	
  PC	
  Users	
  (US)	
      Tablet	
  PC	
  Sales	
  (US)	
  




Source: Forrester
                       Cloud


C L E A R S T O N E
            William Quigley
                                  Managing Director

             Mass Adoption of Cloud Computing is
              Expected to Help the Market Grow to
                      $150 Billion by 2013

                             Cloud	
  Services	
  Market	
  Size	
  (Billions)	
  
$160	
                                                                                      $150	
  
$140	
  
$120	
                                                                           $114	
  
$100	
                                                          $89	
  
 $80	
                                         $71	
  
                              $56	
  
 $60	
            $46	
  
 $40	
  
 $20	
  
   $0	
  
                  2008	
     2009	
           2010	
           2011	
            2012	
     2013	
  



Source: Gartner
              Mass Adoption of Cloud Computing is
               Expected to Help the Market Grow to
                       $150 Billion by 2013

                                          Percentage	
  of	
  PC	
  Unit	
  Sales,	
  US	
  

                                           24%	
     20%	
      18%	
      17%	
      16%	
  
                     39%	
     30%	
  
        46%	
  
                                                     32%	
      32%	
      33%	
      34%	
  
                                           34%	
                                                 Desktops	
  
                               39%	
                                                             Notebooks/laptops	
  
                                                     12%	
      12%	
      12%	
      12%	
  
                     44%	
                 13%	
                                                 Netbooks/minis	
  
        46%	
  
                               15%	
                            38%	
      38%	
      38%	
      Tablets	
  
                                           29%	
     36%	
  
                     17%	
     15%	
  
         8%	
  
          0	
         0	
  
        2008	
      2009	
     2010	
     2011	
     2012	
     2013	
     2014	
     2015	
  

                   “With Microsoft, Google, and others investing in consumer cloud
                   services, we anticipate a virtuous cycle of adoption of tablets
                   driving adoption of cloud services and vice versa.” -Forrester
Source: Forrester
                Social
            Networking &
            Online Games


C L E A R S T O N E
   William Quigley
                         Managing Director

Money flows to
 where people
  spend their
    time…..

      Social Networks and Online Games Increasingly
                   Dominate Internet Usage


                                    Share	
  of	
  Time	
  Online:	
  June	
  2010	
  
                                                                                Social	
  Networks,	
  
                                                                                         23%	
  

                       Other,	
  34%	
  


        Classified/AucKon,	
                                                              Online	
  Games,	
  
                 3%	
                                                                         10%	
  
         MulK-­‐category	
  
                                                                                          E-­‐mail,	
  8%	
  
       Entertainment,	
  3%	
  
         Soeware	
                                                                   Portals,	
  4%	
  
      Manufacturers,	
  3%	
                                                   Instant	
  Messaging,	
  
                                                                                          4%	
  
                Search,	
  4%	
                 Videos/Movies,	
  4%	
  


                       Social networks and online games grew 31% in 2010
                       and now account for 33% of all time online
Source: Nielsen
                  Presented By:"

                  William Quigley Managing Director





C L E A R S T O N E


				
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