mgh oc venture group 2007 09 12

VC in the OCBreakfast Keynote Address

September 12, 2007

Mark G. HeesenPresident

Venture Capital –Barely a macroeconomics rounding error in the world of US finance….

US Venture Capital Investment in Perspective

US GDP $12.5 trillion annuallyHedge fund intake $1.5 trillion over last 3 years estimatedMutual fund intake $158 billion in 2006Buyout intake $103 billion in 2006Venture capital intake $28.6 billion in 2006

Venture capital fundraising & investment Is 0.2% of total GDP

Source: BLS website, Investment Company Institute, Thomson Financial, NVCA

Global Insight StudyIn 2006, venture backed companies:

Provided 10.4 million US jobsHad sales of $2.3 trillion

Represents 17.6% of GDPStill dominated venture-created sectors

56% of biotech revenue78% of computer and peripherals revenue94% of computer and peripherals jobs88% of software sector jobs

Outgrew the economy 2003-2006 in every sector

Source: Venture Impact 2006 by Global Insight

Venture-Backed Employment

8.7

9.4

10.4

7.5

8

8.5

9

9.5

10

10.5

2000 2003 2005

3.6%

1.7%

0.0%

1.0%

2.0%

3.0%

4.0%

VC-Backed Growth Pvt Sector Growth

As a % of total US Pvt Jobs in 2006

Outpaces 2003 - 2006 Total US Job Growth

VC-Backed Jobs = 9%

VC-Backed US Jobs (millions)


VC-Backed Companies Share of Total Employment Top Sectors 2006

Computers and Peripherals Employment

94%

6%

VC-Backed Total

Medical Devices Employment

83%

17%

VC-Backed Total

Telecomm Employment

48%52%

VC-Backed Total

Software Employment

88%

12%

VC-Backed Total


Venture Capital Investment is Productive ...

For VC every dollar invested in 1970-2001, there was $7.90 in US revenue during 2006For every $28,463 of venture capital invested in 1970-2001, there was one job in the year 2006

Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on jobs and revenues. If investment through 2006 ($421B) is used, the ratios would be $5.55 and $40,364 respectively


Fundraising & Resources

At Year End

# Venture Firms

Capital Under Mgt

1970 28 $1B 1980 89 $4B 1990 395 $30B

2000 881 $228B 2001 946 $255B 2006 798 $235B

The Number of US VC Firms Has Peaked .. Thankfully

Source: 2007 NVCA Yearbook, prepared by Thomson Financial, figure 1.04

Investment Marches On -Rumors that the Venture Industry has stopped investing are greatly

exaggerated

VC Investment Peaked in 2000; Recently 20-23% of Peak; 2006 Was Higher

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$ M

illio

n In

vest

ed

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

1H07

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial

1998 to 2006:IT share from 53% to 50%;LS share from 13% to 28%In 2007, LS is 33% (Was 35% in Q1 2007!)

0% 20% 40% 60% 80% 100%

1H07

2006

1998

IT Life Sciences Consumer, Other


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

2000 2001 2002 2003 2004 2005 2006 1H070

20

40

60

80

100

120

140

Invested $M

# Deals

Cleantech/Greentech shows significant growth nationally


Number of First Time Fundings (New Projects) is On Track to Post-Bubble High!

-

500

1,000

1,500

2,000

2,500

3,000

3,500

First Fundings 891 1,143 1,286 1,408 2,442 3,370 1,217 835 749 909 997 1,134 592

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1H07


The Reconcentration of Investment Within the US

Top 5 States by Percentage Invested Within State in 2006(75% of Investment by CA-domiciled funds was into CA companies)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

% in state 75.0 53.0 50.0 44.0 41.0

CA WA TX NC RI

Source: NVCA 2007 Yearbook produced by Thomson Financial

# of States Receiving Funding from CA VCs in 2006 is Up!

0

5

10

15

20

25

30

35

40

# States 31 30 37

1985 1995 2006

Source: NVCA 2007 Yearbook produced by Thomson Financial

California Share seems to be Ever-Increasing

0%10%20%30%40%50%60%70%80%90%

100%

49 states % 62% 59% 52% 51%SoCal% 9% 8% 12% 15%NorCal % 29% 33% 36% 34%

1998 2000 2006 1H07


What’s Happening in the Californias and the OC?

Latest Data from the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson

Financial

For an interactive state analysis tool: www.pwcmoneytree.com

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$M In

vest

ed

0

100

200

300

400

500

600

700

800

# U

psta

te D

eals

$M # Deals

$M 1,283 1,841 4,805 8,929 3,595 2,222 1,909 2,215 2,707 3,169 2,132# Deals 252 330 486 742 398 257 265 274 320 346 191

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1H07

SoCal Investment –Tracks at or above national trends


SoCal’s share has grown over the past decade (MoneyTree regions aggregated for presentation)

0%10%20%30%40%50%60%70%80%

MidAtl & NY 17% 12%New England 11% 13%SoCal% 9% 15%NorCal % 29% 34%

1998 1H07


The Exit Scene -the importance of acquisitions has become clear over the past several years

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1H07

Off

er $

B

0

50

100

150

200

250

300

Num

ber

of IP

Os

IPO Levels Jumped in 2004 but not sustained; New hope in 2007?

Source: Thomson Financial/National Venture Capital Association

0

100

200

300

400

Median Val ($M) 108 182 342 247 322 223 228 255 203 255 3461997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1H07

Recent Median IPO Valuations Are Consistently Higher than Pre-1999


020406080

100

IPOs Done 29 93 56 57 18 26In Reg on last day 31 57 16 36 44 40

2003 2004 2005 2006 1Q07 2Q07

What’s in the IPO Pipeline?IPOs During Period and Registration Counts at Period End


“Happy” Acquisitions Do Exist –4Q 2006 Was StrongRatio of sale price to total VC investment

0

100

200

300

400

# of

M&

A E

xits

>10x TVI 17 39 38 60 74x-10x TVI 38 72 69 67 101x-4x TVI 125 116 135 114 18< TVI 113 115 104 94 20

2003 2004 2005 2006 1H07

Source: Thomson Financial/National Venture Capital Association – Undisclosed txns are prorated

Venture Exit Counts-IPOs and M&A by Year

0

100

200

300

400

500

600

700

73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00

'01

'02

'03

'04

'05

'06

1H07

Year

Num

ber

of Is

sues

M&AIPO


Still Private35%

Known Failed18%

Public or In Reg14%

Acquired33%

For First Fundings From 1991 to 2000, Approximately 33% Were Acquired and 14% Went Public[11,686 Companies Total]


Still Private68%

Known Failed8%

Public or In Reg3%

Acquired21%

Of Companies Receiving First Funding in 2001 and 2002, There Are Few Exits[2040 Companies Total]


Public Policy andThe Venture Industry

Big Challenges …

What’s Running the Show in 2007?An expensive warCongressional eagerness to eliminate middle class AMTRevenue scoringIt’s silly season*Vague legislation creating less predictable outcomes

* - Defined as the 4-year period leading up to a presidential election

Mark G. HeesenPresident

mgh oc venture group 2007 09 12

Business

us venture capital investment

venture capital intake

venture impact

venture industry

vc investment

investment marches

reconcentration of investment

states source