New Atlantic Ventures

Sweden-USEntrepreneurial Forum

September 2011Why is There a Valley of Death in Early Stage?

#sweus

John Backusjohn@navfund.com@jcbackus

2

NAV “At A Glance”

Portfolio company

VA/DC/MD (3)

New York City (6)

(CA & WA)

NAV Office

Boston (5)

Early Stage Venture Capital

Modest Fund Size:‒ $117m current fund (NAV III)

East Coast Focus

Top Decile Post-2000 Performance

Blue Chip LP Base, 50% from EU

Key Difference: Thesis-Led Investors

19 Companies:

3

Why Care About VC & Entrepreneurs?

US GDP $15 Trillion/year

US VC Investments $15 Billion/year (.1%)

20% of all US jobs are in companiesthat are or once were venture backed

4

VC Creates Job Ecosystems

Not all companies should be VC-backed

1990’s eBay creates 1M Powersellers

2000’s Amazon creates 1.3M Stores -40% of Amazon Revenue

2010s Apple creates 500,000 App developers-Facebook platform creates $15B ecosystem

5

Where is the Real Valley of Death?

Between Angel Investments and Early Stage VC!

Source: https://secure.wikimedia.org/wikipedia/en/wiki/Angel_investing

2010Angel

Venture Capital

# of Companies 61,9003,047

Funded

Total $ Invested $20.1B$23.26B

Annual US VC fund-raisingVolatility over the past decade

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$2,737.3$4,608.1$4,899.4$6,879.2$9,427.7$14,128.9$21,808.6$53,501.6$83,458.5$44,764.5$19,361.2$8,935.2$20,673.2$27,871.9$30,492.6$37,446.2$26,573.5$14,536.5$6,423.6

48

76

107 113

129

186

223

353

503

289

155

91

161173 167 172

146

76

33

Amount raised (US$ B)

Number of funds ► Fund-raising has declined in the United States since 2007. ► 2009 marks the fewest funds raised in 16 years. ► In dollar terms, 2009 was the low point in terms of dollars raised since 1997, with the exception of 2003. ► 2010 is on pace for another annual decline – only US$6.4 billion raised in 33 funds as of 30 June 2010.

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

US VC funds raised by stage focusClear shift in dollars toward multi-stage funds as investors seek greater flexibility, growth equity opportunities

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

58% 60% 56%

66%58%

65% 62%56% 59% 58% 58%

6%9%

5%

11%

8%

9%8%

9% 8% 9% 9%

37%31%

39%

23%

34%27% 30%

34% 34% 33% 33%

Multi-stage

Late-stage

Early-stage

501 289 154 91 161 172 166 170 145 76 33

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

49% 50%

67%

58%51%

46%39% 36%

44%

34%

17%

9%

20%

2%16%

13%17%

8%22%

12%

11%

17%

43%

30% 30%26%

35% 37%

53%

42% 44%

55%

66%

Number of funds closed

$83.3 $44.8 $ 19.2 $8.9 $20.7 $27.7 $30.3 $37.1 $26.4 $14.5 $6.4

Amount of funds closed (US$b)

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

Declining number of VC firms actively investing

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

626726 724 672

591 613 597 572 614 572490

712 514398

381449 405 416 426 375

313

167

United StatesNumber of firms making 4 or more investments in year Number of firms making 1-3 investments in year

1338 1240 1122 1053 1040 1018 1013 998 989 885 657

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

462477438404401392390395398363274

288158

130142163137156147141

110

51

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 1H'10

368317

264 243291

255 258 250205 202

139

86

60

42 58

4949 42 52

44 34

11

New England

Bay Area 750 635 568 546 564 529 546 542 539 473 325

454 377 306 301 340 304 300 302 249 236 150

Source: Dow Jones VentureSource; Ernst & Young Venture Insights

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Why the Decline?

• Entrepreneurs, LPs & GPs got greedy in the late 1990s– VC fund sizes ballooned– Too many VCs = too many marginal companies funded– Fund sizes drove shift to late stage– Exit market dried up in US: 9/11 & 9/08

• Returns for the decade were flat, on average

• BUT, many funds small early stage funds did quite well