3q09 nav report and outlook 330pm 10-22-09

8/14/2019 3Q09 NAV Report and Outlook 330pm 10-22-09

1/9

2005-2007 VENTURE FUND NAVs OVERVALUED 40.1%

We estimate that venture funds with 2005-2007 vintages worldwide

may have overstated net asset values by approximately 40.1% on

average as of June 30, 2009. Our analysis is based on a comparison

of the cumulative percentage change in (a) stated net asset values of

selected venture funds with 2005-2007 vintages having total capital

commitments of approximately $44 billion vs. (b) enterprise value to

EBITDA multiples of selected publicly-traded information technology

companies having a total market capitalization of approximately $250billion for the period December 31, 2005 to June 30, 2009. In

summary, the venture funds wrote up net asset values approximately

7.28% during the period, while the information technology companies

enterprise value to EBITDA multiples contracted approximately

32.84%. (Please see Table 1).

2005-2007 BUYOUT FUND NAVs REASONABLY VALUED

We estimate that buyout funds with 2005-2007 vintages worldwide

have nominally overstated net asset values by approximately 2.50%

on average as of June 30, 2009. Our analysis is based on acomparison of the cumulative percentage change in (a) stated net

asset values of selected buyout funds with 2005-2007 vintages

having total capital commitments of approximately $318 billion vs. (b)

enterprise value to EBITDA multiples of selected publicly-traded

industrial companies having a total market capitalization of

approximately $449 billion for the period December 31, 2005 to June

30, 2009. In summary, the buyout funds wrote down net asset values

approximately 30.35% during the period, while the industrial

companies enterprise value to EBITDA multiples contracted

approximately 32.92%. (Please see Table 2).

3Q2009 Net Asset Valuation

Report and Outlook

Venture Funds May Be Significantly Overvalued

October 26, 2009

www.nyppex.com

1

If you have any questions

regarding the matters discussedin this report, please contact your

r e l a t i onsh i p m anager a t

NYPPEX, or send an email to

[email protected].

* * * *

This report is provided by

NYPPEX, LLC for research s u b s c r i b e r s . I t i s f o r

informational purposes only and

not intended to be construed asinvestment, legal or tax advice.

GLOBAL PRIVATE MARKETS RESEARCH

ASSET VALUATION REVIEW

Confidential Information

Historical Enterprise Value toEBITDA Multiples for

Information TechnologyCompanies

1

As of Date

EV / EBITDA

Multiple

12/31/2005 10.90x12/31/2006 11.10x

12/31/2007 10.30x

12/31/2008 4.93x6/30/2009 7.32x

Source: Capital IQ, Bloomberg

Historical Enterprise Value toEBITDA Multiples forIndustrial Companies

5

As of Date

EV / EBITDA

Multiple

12/31/2005 9.75x

12/31/2006 9.57x

12/31/2007 9.69x

12/31/2008 5.23x

6/30/2009 6.54x

Source: Capital IQ, Bloomberg


2/9

SECONDARY BIDS MAY DECLINE 23% FOR VENTURE FUNDS DUE TO OVERSTATED NAVs

We believe, the median secondary bid for interests in venture funds worldwide may decline as much as 23% to

49.32 in 2010 vs. 64.12 as of September 30, 2009 (expressed as a percentage of net asset value) due to

concerns about overstated net asset values, and therefore, the ability to generate exits in the near term. In turn,

we expect greater secondary supply. This process may have begun in the 3Q2009 when Stanford University

announced secondary offerings in premier venture names such as Sequoia Capital and Kleiner Perkins. As

secondary buyers adjust assumptions that net asset values are overstated 40.1% from 10% (our estimate) for

venture funds with 2005-2007 vintages, we expect secondary bids to be adjusted lower for the venture fund

sector. In general, secondary bids could be recalculated as follows: 64.12 / [1+ (.40 - .10)] = 49.32. Then,

(64.12 49.32) / 64.12 = 23% lower prices.

SECONDARY BIDS MAY INCREASE 25% FOR BUYOUT FUNDS AS BUYERS ADJUST FOR FAIRLY VALUED NAVs

We believe, the median secondary bid for interests in buyout funds worldwide may increase 25% to 59.47 in

2010 versus 47.58 as of September 30, 2009 (expressed as a percentage of net asset value) due to higher

confidence regarding the accuracy of net asset values, and therefore, the ability to generate exits in the near

term. This process appears to have begun with the RailAmerica, Inc. IPO from Fortress Investment Group,

which priced on October 13, 2009. As secondary buyers adjust assumptions that net asset values are

reasonably valued rather than overstated 20% (our estimate) for buyout funds with 2005-2007 vintages, we

expect secondary bids to be adjusted higher for the buyout fund sector. In general, secondary bids could be

recalculated as follows: 47.58 / (1 - .20) = 59.47. Then, (59.47 47.58) / 47.58 = 25% higher prices.

NAVs TO IMPACT EXIT OPPORTUNITIES

In general, we believe venture funds with 2005-2007 vintages will continue to experience difficulty generating

exits and distributions. However, the primary reason will increasingly be due to overvalued portfolio companies

based on enterprise value to EBITDA multiples, as opposed to weak IPO or M&A market conditions. Of note, in

2008, our selected venture funds with 2005-2007 vintages wrote down asset values only 8.28% on average,

while our selected information technology companies enterprise value to EBITDA multiples contracted 52.1%.

In contrast, buyout funds with 2005-2007 vintages in general responded to public criticism in the 4Q2008 and

1Q2009 regarding overstated net asset values. Today, we believe buyout funds with 2005-2007 vintages are

carrying portfolio companies at reasonable valuations based on enterprise value to EBITDA multiples, and are

well positioned to generate distributions and exits. Of note, in the first half of 2009, our selected buyout funds

with 2005-2007 vintages wrote down asset values by 4.50% on average, despite the fact that our selected

industrial companies enterprise value to EBITDA multiples expanded 25.05%.

There are three instances where our view regarding exits for venture funds with 2005-2007 vintages may not

be applicable: 1) a venture-backed portfolio company is not in the information technology sector, which is the

benchmark sector utilized for this Report; 2) a venture-backed portfolio companys valuation at exit is based on

a revenue multiple or valuation method other than enterprise value to EBITDA, which is the benchmark

valuation methodology utilized for this Report; and 3) a 2006 or 2007 venture fund made new investments at

lower enterprise value to EBITDA valuation multiples than the multiples utilized for new investments made in

2005, which was the base year for this Report.

2

3Q2009 NET ASSET VALUATION REPORT AND OUTLOOK

CONFIDENTIAL INFORMATION


3/9

3

CONFIDENTIALINFORMATION

TABLE1

HistoricalEnterpriseValuetoEBITDAMultiplesforSe

lectedInformationTechnolog

yCompanies

vs.NetAssetVa

luesofSelected2005-2007V

entureFunds

InformationTechnolog

yCompanySector

VentureFunds

(H)

(B)

(E)

(F)

(G)

Cumulative

ITSector

ITSector

YOY

Cumulative

Venture

Percentage

Percentage

NAV

EV/EBIT

DA

EV/EBITDA

Percentag

e

Percentage

Fund

Changein

Changein

Overvalued

AsofDate

Multiple

s1

Index2

Change

Change

Index3

NAV4

NAV

(Undervalued)

(G-D)

12/31/2005

10.90

x

1000

N/A

N/A

1000

N/A

N/A

N/A

12/31/2006

11.10

x

1018

+1.83%

+1.83%

1000

+0.02%

+0.02%

-1.81%

12/31/2007

10.30

x

945

-7.21%

-5.50%

1104

+10.42%

+10.44%

+15.95%

12/31/2008

4.93

x

452

-52.14%

-54.77%

1013

-8.28%

+1.30%

+56.07%

6/30/2009

7.32

x

672

+48.48%

-32.84%

1073

+5.91%

+7.28%

+40.13%

Source:NYPPEX,

CapitalIQ,Bloomberg,Preqin,VentureEconomics

(A)

NYPPEX

(C)

(D)

NYPPEX

YOY

Cumulative

Percentage

3Q2009NETASSETVALUATION

REPORTANDOUTLOOK

InformationTe

chnologyCompanySectorProfile

AsofDate

Oct.12,2009

NumberofExchanges

37

TotalMarketCapitalization

$250billion

NumberofCom

panies

750

UnitedStates

34.09

%

Europe

15.91

%

RestofWorld

50.00

%

Regions

VentureF

undsProfile

AsofDate

June30,2009

Vintages

2005to2007

TotalCapitalCommitments

$44

billion

NumberofFunds

98

Regions

UnitedStates

8

0.80%

Europe

6.11%

RestofWorld

1

3.09%


4/9

4


TABLE2

HistoricalE

nterpriseValuetoEBITDAMu

ltiplesforSelectedIndustrialCompanies

vs.NetAssetValuesofSelected2005-2007Bu

youtFunds

IndustrialCompanySector

BuyoutF

unds

(B)

(H)

Indu

strial

Industrial

(C)

(D)

NYPPEX

YOY

Cumulative

Percentage

Se

ctor

Sector

YOY

Cumulative

Buyout

Percentage

Percentage

NAV

EV/E

BITDA

EV/EBITDA

Percentage

Percentage

Fund

Changein

Changein

Overvalued

AsofDate

Multiples5

Index6

Change

Change

Index7

NAV4

NAV

(Undervalued)

(G-D)

12/31/2005

9.75x

1000

N

/A

N/A

1000

N/A

N/A

N/A

12/31/2006

9.57x

982

-1.85

%

-1.85%

1086

+8.63%

+8.63%

+10.48%

12/31/2007

9.69x

994

+1.25

%

-0.62%

1227

+12.99%

+22.74%

+23.36%

12/31/2008

5.23x

536

-46.03

%

-46.36%

729

-40.58%

-27.07%

+19.29%

6/30/2009

6.54x

671

+25.05

%

-32.92%

697

-4.50%

-30.35%

+2.57%

Source:NYPPEX

,CapitalIQ,Bloomberg,Preqin,VentureEconomics

(A)

NYPPEX

(E)

(F)

(G)

Cumulative


REPORTANDOUTLOOK

IndustrialC

ompanySectorProfile

AsofDate

Oct.12,2009

NumberofExchanges

56

TotalMarke

tCapitalization

$449billion

NumberofCompanies

1,201

UnitedStates

26.35%

Europe

21.99%

RestofWorld

51.67%

Regions

BuyoutFundsProfile

AsofDate

June30,2

009

Vintage

s

2005to2

007


$318billion

NumberofFunds

106

Regions

UnitedStates

63.5

1%

Europe

30.2

5%

RestofWorld

6.2

6%


5/9

5CONFIDENTIAL INFORMATION

TABLE 3 Historical Information Technology Company Sector

Enterprise Value to EBITDA Multiplesvs. S&P 500 Index Returns

Information Technology Company Sector S&P 500 Index

(A) (B) (C) (E) (F)

IT Sector YOY Cumulative (D) YOY CumulativeEV / EBITDA Percentage Percentage S&P 500 Percentage Percentage

As of Date Multiples Change Change Index Change Change

12/31/2005 10.90x 0.00% 0.00% 1254.42 +0.00% +0.00%

12/31/2006 11.10x +1.83% +1.83% 1418.30 +13.06% +13.06%

12/31/2007 10.30x -7.21% -5.50% 1468.36 +3.53% +17.05%

12/31/2008 4.93x -52.14% -54.77% 903.25 -38.49% -27.99%

6/30/2009 7.32x +48.48% -32.84% 919.32 +1.78% -26.71%

Source: NYPPEX, Capital IQ, Bloomberg

TABLE 4 Historical Industrial Company Sector Enterprise Value to EBITDA Multiplesvs. S&P 500 Index Returns

Industrial Company Sector

(A) (B) (C) (E) (F)

Industrial YOY Cumulative (D) YOY CumulativeEV / EBITDA Percentage Percentage S&P 500 Percentage Percentage

As of Date Multiples Change Change Index Change Change

12/31/2005 9.75x 0.00% 0.00% 1254.42 +0.00% +0.00%

12/31/2006 9.57x -1.85% -1.85% 1418.30 +13.06% +13.06%

12/31/2007 9.69x +1.25% -0.62% 1468.36 +3.53% +17.05%

12/31/2008 5.23x -46.03% -46.36% 903.25 -38.49% -27.99%

6/30/2009 6.54x +25.05% -32.92% 919.32 +1.78% -26.71%

Source: NYPPEX, Capital IQ, Bloomberg

S&P 500 Index



6/9

6


TABLE5

HistoricalEnterpriseValu

etoRevenueMultiplesforSe

lectedInformationTechnolog

yCompanies

vs.NetAssetVa

luesofSelected2005-2007V

entureFunds

InformationTechnolog

yCompanySector

VentureFunds

(H)

(B)

(E)

(F)

(G)

Cumulative

ITSector

ITSector

YOY

Cumulative

Venture

Percentage

Percentage

NAV

EV/Reve

nue

EV/Revenue

Percentag

e

Percentage

Fund

Changein

Changein

Overvalued

AsofDate

Multiple

s8

Index9

Change

Change

Index3

NAV4

NAV

(Undervalued)

(G-D)

12/31/2005

1.32

x

1000

N/A

N/A

1000

N/A

N/A

N/A

12/31/2006

1.29

x

977

-2.27%

-2.27%

1000

+0.02%

+0.02%

+2.29%

12/31/2007

1.19

x

902

-7.75%

-9.85%

1104

+10.42%

+10.44%

+20.29%

12/31/2008

0.49

x

374

-58.49%

-62.58%

1013

-8.28%

+1.30%

+63.87%

6/30/2009

0.66

x

498

+33.00%

-50.23%

1073

+5.91%

+7.28%

+57.51%

Source:NYPPEX,

CapitalIQ,Bloomberg,Preqin,VentureEconomics

(A)

NYPPEX

(C)

(D)

NYPPEX

YOY

Cumulative

Percentage


REPORTANDOUTLOOK

InformationTe

chnologyCompanySectorProfile

AsofDate

Oct.22,2009

NumberofExchanges

47

TotalMarketCapitalization

$282billion

NumberofCom

panies

1,626

UnitedStates

38.00

%

Europe

21.28

%

RestofWorld

40.72

%

Regions

VentureF

undsProfile

AsofDate

June30,2009

Vintages

2005to2007


$44billion

Numbero

fFunds

98

Regions

UnitedStates

80.80%

Europe

6.11%

RestofWorld

13.09%


7/9

7

Footnotes

1. Enterprise Value to EBITDA multiples for approximately 750 publicly-traded companies worldwide having a Global Industry

Classification Standard Code of Information Technology and an aggregate market capitalization of approximately $250

billion as of October 12, 2009 (the Information Technology Sector). Source: Capital IQ, Bloomberg.

2. The NYPPEX Information Technology Sector EV/EBITDA Index estimates the cumulative percentage change over time in

enterprise value to EBITDA multiples of companies comprising the Information Technology Sector.

Source: Capital IQ, Bloomberg.

3. The NYPPEX Venture Fund Index estimates the cumulative percentage change in net asset values stated by selected venture

funds worldwide having 2005, 2006 and 2007 vintages and total capital commitments of approximately $44 billion as of June

30, 2009. Source: Preqin, Venture Economics.

4. Percentage change in net asset values were adjusted to offset the effect of capital calls and distributions. During the period,

capital calls were deducted and distributions were added to the funds ending net asset values.

5. Enterprise Value to EBITDA multiples for approximately 1,201 publicly-traded companies worldwide having a Global Industry

Classification Standard Code of Industrials and an aggregate market capitalization of approximately $449 billion as ofOctober 12, 2009 (the Industrial Sector). Source: Capital IQ, Bloomberg.

6. The NYPPEX Industrial Sector EV/EBITDA Index estimates the cumulative percentage change over time in enterprise value

to EBITDA multiples of companies comprising the Industrial Sector. Source: Capital IQ, Bloomberg.

7. The NYPPEX Buyout Fund Index estimates the cumulative percentage change in net asset values stated by selected buyout

funds worldwide with 2005, 2006 and 2007 vintages and total capital commitments of approximately $318 billion as of June

30, 2009. Source: Preqin, Venture Economics.

8. Enterprise Value to Revenue multiples for approximately 1,626 publicly-traded companies worldwide having a Global Industry

Classification Standard Code of Information Technology and an aggregate market capitalization of approximately $282

billion as of October 26, 2009 (the Information Technology Revenue Sector). Source: Capital IQ, Bloomberg.

9. The NYPPEX Information Technology Sector EV/Revenue Index estimates the cumulative percentage change over time in

enterprise value to revenue multiples of companies comprising the Information Technology Revenue Sector.

Source: Capital IQ, Bloomberg.

Methodology for this Report

Our quarterly approach to analyzing the reasonableness of net asset values stated by venture and buyout funds is based on

comparisons to the cumulative percentage change in enterprise value to EBITDA multiples of selected publicly-traded companies

in comparable sectors for a specified period of time. We believe, this approach is appropriate given that enterprise value to

EBITDA is the standard valuation approach typically utilized by venture and buyout funds when making new investments in private

companies.

We believe, S&P 500 Index returns should not be utilized when analyzing the reasonableness of net asset values stated by

venture and buyout funds, primarily for two reasons: (a) during periods when S&P 500 Index returns are positive as a result of

higher corporate earnings year over year, and price to earnings multiples remain unchanged, one may incorrectly conclude thatthe net asset values of venture and buyout funds should be written up; and (b) the S&P 500 Index is comprised of companies

whose market capitalizations are based typically on earnings multiples, whereas venture and buyout funds estimate fair values of

private company holdings based typically on EBITDA multiples, and then make adjustments for the cash balances and long-term

debt of such companies. However, for comparative purposes, we have included historical S&P 500 Index returns vs. the

percentage changes in enterprise value to EBITDA multiples for the Information Technology Sector and Industrial Sector in this

Report. (Please see Tables 3 and 4).

Further, we believe, when analyzing the reasonableness of net asset values stated by venture funds, it may be appropriate to also

consider a comparison to the cumulative percentage change in enterprise value to revenue multiples of selected publicly-traded

information technology companies. To view our analysis utilizing this approach, please see Table 5.




8/9

8

Important Disclaimer

The NYPPEX Buyout Fund Index and the NYPPEX Venture Fund Index were created to provide a general barometer for the level

of reasonableness of net asset values stated by venture and buyout funds. However, we recognize that this approach has certain

limitations. The methodology used in this Report is not intended to imply that buyout funds only hold portfolio companies in the

Industrials sector or that venture funds only hold portfolio companies in the Information Technology sector. We believe, such

sectors are merely benchmarks for analyzing the reasonableness of net asset values in general, as stated by venture and buyout

funds. Additionally, the results in this Report are not intended to imply that all 2005, 2006 and 2007 buyout funds are reasonably

valued or that all 2005, 2006 and 2007 venture funds are overvalued.

The information contained herein is intended for the exclusive use of the addressee and is strictly confidential (the "Information").

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expressed in the report reflect their personal views about the subjects, prices, securities, issuers and markets. The Authors hereby

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# # # # # #

3QNAV152010212009



3q09 nav report and outlook 330pm 10-22-09

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