the investment potential of growth capital and the digital economy
TRANSCRIPT
The Investment potential of Growth Capital and the Digital Economy
Axon Partners GroupInvestment | Corporate | Consulting
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8.6%
3.7%
6.1%
8.8%
18.0%
7.1%
0.1%
4.6%
15.0%
18.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Global Equities Cash (*) Fixed Income (*) Real Estate (**) Private Equity
Average Historical Returns Most Recent annual return
Historically, alternative assets have provided higher returns, with Private Equity being less risky than Real Estate
Alternative Assets
25 year Historical average return and last 12-month returns for the different asset classes
Russell Investments, based on Russell Indexes and Other market Indices. Using data as of January 31st 2015(*) Annualized returns since 1970(**) Annualized returns since 2000
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Pension funds are increasing their Private Equity allocations mainly due to the above-average returns that it offers
4.5%4.7%
4.5%
4.9%5.1%
5.6%5.5%
5.6%6.2%
6.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
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9
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
USD
Tri
llio
n
AUM Tr PE Allocation
Coller Institute Private Equity: The extent and evolution of Pension Funds’ Private Equity Allocation and Preqin Institutiona Investors Survey H2 2014
Pension funds allocations to PE (% of Total AUM)Institutional Investors allocation expectations on PE for 2015
Increase PE allocation
36%
Maintain PE Allocation
55%
Decrease PE Allocation
9%
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Within Private Equity, Growth Capital has the lowest capital loss ratio and returns have outperformed Venture Capital for the last decade
PE Asset Class Capital Loss Ratio
US Venture Capital 35,40%
US Growth Equity 13,40%
US Buyout 15,10%
Average Capital Loss Ratios
Capital Loss Rate: All capital invested in realised deals below cost (write-offs), net of any recovered proceeds, as a percentage of total invested capital
Returns (Net to LPs)
As of June 2013
Cambridge Associates Report- Growth Equity is all Grown up (2013) and data analytics and Private Equity GC Council, 2013 Q2 performance update
11.30% 11.40%
4.10%
13.80%
16.10%
9.60%
13.40%
15.80%
8.20%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
1-year 3-Year 5-Year
US Venture Capital US Growth Equity US Buyout
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30% of the value invested in Growth Capital has an exit of above 2,0x. Which is a higher percentage than that of Venture Capital and Buyouts
Exit multiples in Growth Capital are higher on average than those in Venture Capital and Buyout
Exit multiples of Invested Capital per Asset Class (2013)
Cambridge Associates Report- Growth Equity is all Grown up (2013)
0%
10%
20%
30%
40%
50%
60%
70%
Venture Capital Growth Buyouts
% of investments with exit multiple of <1.0x % of investments with exit multiple between 1.0x-1.99x
0%
5%
10%
15%
20%
25%
30%
35%
40%
Venture Capital Growth Buyouts
% of investments with exit multiple between 2.0x-4.99x % of investments with exit multiple over 5.x
0%
5%
10%
15%
20%
25%
30%
Venture Capital Growth Buyouts
0%
2%
4%
6%
8%
10%
12%
Venture Capital Growth Buyouts
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The digital economy receives more than half of the investment from Private Equity, because is the best sector to be in
Invested Capital by sector (2013)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Venture Capital Growth Buyouts
Digital/Tech Financial Services Health Care Consumer Retail Other
Companies in the Technology/Digital sector have received major interest from alternative asset classes due to the strong performance of this sector over the past decade
Cambridge Associates Report- Growth Equity is all Grown up (2013)
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In 2014 and 2013, digital companies’ revenues grew on average 16.8% and 8.7% respectively, outperforming other sectors in the economy
Pwc: Industry trends in 2014 provided by csimarket trends and MarketWatch
Revenue Growth by sector
Years to USD 1Bn dollar Valuation
0
2.5
5
7.5
10
Years
2005 2008 2011
Docusign
Box
ClouderaStripe
Hortonworks
Pure Storage
AppNexus
Spotify
Tumblr
DropBox
Airbnb
Groupon
Snapchat
16.77%
5.25%4.08%
-4.15%
7.16%
3.50%4.73%
-5.00%
0.00%
5.00%
10.00%
15.00%
Digital
Technology
Transportation Consumer Energy Retail Financial Utilities
Revenues yoy, 2014 Revenues yoy, 2013
8
136
68.3
48.1 46.9 46.4
33.728.4
0
20
40
60
80
100
120
140
160
Apple Microsoft Google Pfizer Cisco Oracle Qualcomm
USD
Bn
Cash (USD bn)
In addition, Digital companies are the ones with the biggest cash piles available for investment
US Treasury Cash: 49Bn
6 out of the 7 biggest companies by cash are Technology companies (2014)
List From Forbes Magazine
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Global digital companies’ cash is then used for acquisition purposes and flows into digital companies in expansion stage all over the world
Largest Exits Globally in 2014
Company Total Funding Acquirer Exit Value
USD 3,8Bn USD 25BnUSD IPOBn
USD 60,3Bn USD 19,5Bn
USD 225m USD 1,5Bn
Other Internet Deals, with an acquisition angle
USD 1,2Bn and KKR, Blackrock, Fidelity Equity, Summit Partners
USD 1,2BnAnd Recruit Holding, Ru-net Ltd
USD 700m (total round raised)
Preqin Report, as of January 2015
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Choosing the best region: US, UK and Israel remain the tier one PE hubs in terms of PE penetration, but there are certain emerging hubs with potential
North AmericaUSD 53,3bn
IsraelUSD 1,3bn
ChinaUSD 12,8bn
RoWUSD 3,9bn
Aggregate Value of deals in 2014 by region
Total Value of Deals: USD 86bn
Number of Deals: 7,475
Total Exit value: USD 121bn
Source: Preqin 2014 Yearly report
IndiaUSD 5,4bn
EuropeUSD 9,3bn
Axons Target Sectors
Israel1,62%
US1,02%
UK0,89%
Brazil0,30%
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Emerging VC hubs offer a three-fold advantage over top tier hubs
A supportive investment partner
…And expandInternationally
…helping find corporatesolutions
With smart money to help grow the business
Findingsources of financing
3. Valuation Arbitrage: Buy at lower valuations and grow the company to attract global leaders to sell at higher valuations
2. Lower Competition: Less competitors in emerging hubs due to lower PE penetration ratio:
1.02% 0,89%
0.30%0.18% 0.13% 0.10%
-0.40%
0.10%
0.60%
1.10%
US UK Brazil Germany SouthernEurope
LatamPacific
1. Rear view advantage, with an estimated time-lapse of 2-3 years. For example, below shows mobile internet penetration in each region
72%
55%
23% 18%8%
0%
20%
40%
60%
80%
NorthAmerica
WesternEurope
SouthAmerica
SoutheastAsia
CentralAmerica
Pwc: Industry trends in 2014
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ClickDelivery is an example of the potential returns from emerging hubs
Food Delivery company based in Bogota, invested by Axon Amerigo Ventures in May 2013
13,974
99,142
April 2013 May 2014
x7
Monthly Orders increase since Axon Investment
Online food-ordering service based in Germany (Berlin) consolidating for
IPO
Backed by: TengelmannVentures, Point Nine Capital, Insight Ventures, Kite Ventures among others
Raised over USD 635 million
Looking for expansion into Latam through M&A
• IRR: +500%
• Multiple: +4x
• 2013-2014
Axon Closed an Exit at:
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Wuaki.TV another example of how value can be created by investing in emerging hubs, in growth companies in the digital sector
B2C video-on-demand (VOD) service, which allows customers to directly access different films and TV series. Invested by Axon in October 2011
5,300
171,940
April 2013 May 2014Oct 2011 Jun 2012
Revenues at Entry and Exit
34x
Japanese E-commerce giant. More than 50 mill registered users and a net
profit of 886 million EUR.
Market Cap: 18.22 millionListed in the Tokyo Stock Exchange
Looking to create a Global Video On Demand Brand through
acquisition of main players in different geographies
Axon Closed an Exit at:
• IRR: +350%
• Multiple: +4x
• 2012-2013
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Axon played an integral part in the recent online global online food delivery sector deals
Foodpanda, food delivery company part of the Rocket Internet group, raised USD
700 million to take over similar food delivery companies around the world
Food Delivery company headquartered in the UK with Operations in India.
Food Delivery company headquartered in Italy.
The resulting deal is the largest in the online food delivery sector in Italy and the largest exit of a company with a business life of only five years
Food Delivery company headquartered Spain.
This is the single largest deal in the online food delivery sector in Spain, and is the largest M&A transaction in the Spanish digital economy space
since 2013
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Axon Partners Group Investment - International investment firmAxons’ funds invest in digital companies in all phases of development
Assets Under Management
Spain IndiaLatAm
*Axon recently launched ICT III fund
• ICT III Fund will invest in Spanish companies within the digitaleconomy sector in international expansion stage
• In Spain, a high proportion of investment has traditionally focusedon early stage startups, which has led to increased multiples andvaluations. Those early-stage startups have grown and now requirehigher rounds of financing that very few local VCs can satisfy
• Hence, ICT II strategy is to cover the financing gap betweenearly and late stage Venture Capital
• If you are an investor and you are interested in receiving moreinformation about this fund and the digital growth capitalopportunity, please contact:
• If you are an entrepreneur and you have an exciting company inthe Digital Growth sector and you would like us to hear more aboutICT III, please contact:
Investment stages
Seed Stage Early StageGrowth & Expansion
250K Up to 2m Up to 15m
Follow-on investment
Revenues of more than USD 5m and
in profit
Proven business models, recurring
revenues and entry-barriers crossed
Less than 24 months but with a
proven product and
entrepreneurial approach
Follow-on investment
• ICT III-Growth Stage*
• ICT I –Early Stage
• ICT II –Early Stage Amerigo Ventures Pacifico Fund
India Opportunities
Fund
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