venture partners as leveraging the nordic internet edge presentation bi, mba-class 18 february, 2000
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Venture Partners AS
Leveraging the Nordic Internet Edge
Presentation
BI, MBA-class 18 February, 2000
Venture Partners Management
Presentation highlights
The Nordic and European Internet Space is an attractive investment opportunity due to the advanced stage of the Nordic countries and a strong European growth perspective.
Venture Partners Management has built a strong franchise for investing in Internet and related technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can be mitigated in several ways
Venture Partners Management
Presentation highlights
The Nordic and European Internet Space is an attractive investment opportunity due to the advanced stage of the Nordic countries and a strong European growth perspective.
Venture Partners Management has built a strong franchise for investing in Internet and related technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can be mitigated in several ways
Venture Partners Management
Investment Focus
Internet
Media
TelecomInformation
Tech.
VPM Focus
Venture Partners Management
Technology is becoming an important part of the total economy
Today the technology sector within the US economy accounts for roughly 15% of the total economy.
At the present growth rate, technology will account for over 51% of the economy by 2008.
Year after year, technology companies grow at about 15% while the rest of the economy plods along at 2-3% real growth.
Out of the total technology growth, Internet-related businesses are growing at about 80 % per year
Venture Partners Management
Technology is the Fastest Growing Component of U.S. GDP
Source: BEA
-5%
0%
5%
10%
15%
20%
25%
30% I 1
98
8
IV
19
88
III 1
98
9
III 1
99
0
II 1
99
1
I 1
99
2
IV
19
92
III 1
99
3
II 1
99
4
I 1
99
5
IV
19
95
III 1
99
6
II 1
99
7
I 1
99
8
IV
19
98
III 1
99
9Year-
over-
Year
Gro
wth
IT Growth
GDP Growth
Venture Partners Management
InternetInternet InternetInternetRevenuesRevenues JobsJobs
The US Internet economy
Internet Infrastructure $115.0 Billion 372,462Provides products that createor enable an IP network infrastructure
Internet Applications $56.3 Billion 230,629Creates applications that enablebusiness over an IP network
Internet Intermediary $58.2 Billion 252,473Facilitates the meeting ofbuyers and sellers online
Internet Commerce $101.9 Billion 481,990Sells products over the Internet
Internet Economy Totals $301.4 Billion 1,203,799
It took the automotive and energy industry It took the automotive and energy industry 100 years100 years to match similar figures to match similar figuresIt took the automotive and energy industry It took the automotive and energy industry 100 years100 years to match similar figures to match similar figures
Source: Study sponsored by Cisco Systems and conducted by the University of Texas (1999 estimate)
Venture Partners Management
The Internet - is affecting all of us
Andy Grove, Chairman of Intel, said in 1999.
In five years’ time, all companies will be Internet companies — or they won’t be companies.
In five years’ time, all companies will be Internet companies — or they won’t be companies.
Venture Partners Management
US Internet companies attract strong values
*Data as of 7/30/99 % change Mkt Cap*Company Ticker Description since IPO ($MM)
1 Microsoft MSFT Software/Internet 29878 % 444 7172 America Online AOL Portal/ISP 27331 % 107 2933 Charles Schwab SCH E-broker/Finance Portal 6745 % 37 4444 Yahoo! YHOO Portal 6223 % 34 9395 Amazon.com AMZN E-commerce portal 3285 % 16 4096 Excite XCIT Portal 795 % 15 5657 EBAY EBAY E-trade 1604 % 12 8068 Priceline PCLN E-trade - travel 403 % 11 4579 CMG Info.n Svcs CMGI Internet holding company 14741 % 8 912
10 E*trade Group EGRP E-broker/Finance Portal 1119 % 7 47111 Juniper Networks JNPR ISP 326 % 7 08512 Real Networks RNWK Internet software 1154 % 5 49613 Exodus EXDS Internet software 1582 % 5 19114 Inktomi INKT Internet software 1058 % 5 09015 eToys ETYS E-commerce 114 % 3 458
Venture Partners Management
US Internet companies vs. Norwegian Blue Chips
*Data as of 7/30/99 Mkt Cap*Company Ticker ($MM)
1 Microsoft MSFT 444 7172 America Online AOL 107 2933 Charles Schwab SCH 37 4444 Yahoo! YHOO 34 9395 Amazon.com AMZN 16 4096 Excite XCIT 15 5657 EBAY EBAY 12 8068 Priceline PCLN 11 457
Norsk Hydro 11 2739 CMG Info.n Svcs CMGI 8 912
RCCL 7 91410 E*trade Group EGRP 7 47111 Juniper Networks JNPR 7 08512 Real Networks RNWK 5 49613 Exodus EXDS 5 19114 Inktomi INKT 5 090
Nycomed Amersham 3 93015 eToys ETYS 3 458
Orkla 2 935
Venture Partners Management
11 of the 15 most valuable US Internet stocks are less than 5 years old
Mkt Cap*Company ($MM) Foundation
1 Microsoft 444 717 19752 America Online 107 293 19853 Charles Schwab 37 444 19744 Yahoo! 34 939 19945 Amazon.com 16 409 19956 Excite 15 565 19947 EBAY 12 806 19958 Priceline 11 457 19969 CMG Info.n Svcs 8 912 1986
10 E*trade Group 7 471 199511 Juniper Networks 7 085 199412 Real Networks 5 496 199513 Exodus 5 191 199414 Inktomi 5 090 199615 eToys 3 458 1996
* Share prices as of 7/30/99
Venture Partners Management
Active Venture capital funding has facilitated rapid growth
Venture Partners Management
Venture capital - the chief source of funding for Internet businesses
0
1
2
3
4
5
6
7
8
9
1.half 97 1. Half 98 1. Half 99
USD millions
Average Deal size of Internet Related Investments
0
1
2
3
4
5
6
1. Half 98 1. Half 99
USDbillion
Investments in Internet Related companies
Source: PriceWaterhouseCoopers, September 1999
Venture Partners Management
Where Have We Been?
June 1995 - December 1999
Netscape Navigator shipped - 6/95
http://www:
Exploration
Experimentation
Business Model:
Consumer traffic driven
Advertising CPM’s
Venture Partners Management
Where Are We Now?
1999/2000
http://www.
Dis-intermediation
Business re-engineering
New businesses
Business Models:
% of transaction
service usage
auction-based everything
“free”
Venture Partners Management
Where Are We Going?
2000- 2002 Estimate
Everything is “auctionable” Consolidation of:
Customers as pooled buying power
B2B procurement verticals Infrastructure Investments
mobile, wireless
broadband cable
DSL Enablers
new ASP software services
Venture Partners Management
Segments that will drive Internet growth
Source: Morgan Stanley Technology Research
Rev
enue
Infr
astr
uctu
re
Time
Soft
war
e &
Ser
vice
s
Con
tent
/Agg
rega
tion
Ret
ail/C
omm
erce
Bus
ines
s
Ree
ngin
eeri
ng/S
ervi
ces/
Ver
tical
s
1998 1999 2000 2001 2002
European Average – 3 years lag behind US
VPM III Focus
Venture Partners Management
European Internet Growth
22,4
33,5
48,0
63,8
75,8
91,0
100,3
109,5
0,0
20,0
40,0
60,0
80,0
100,0
120,0
1997 1998 1999E 2000E 2001E 2002E 2003E 2004E
M U
se
rs
Source : Morgan Stanley Dean Witter, June 99
Internet growth highest outside US The European market will triple in 5 years
Venture Partners Management
Nordic Countries are ahead
Million Users Population PercentFinland 1,57 5,10 30,8Norway 1,34 4,40 30,5Sweden 2,58 8,80 29,3Denmark 0,95 5,30 18,0Switzerland 1,00 7,10 14,1UK 8,10 58,10 13,9Netherlands 1,96 15,30 12,8Europe 33,60 384,20 8,8Germany 7,14 82,10 8,7Belgium 0,79 10,20 7,7Ireland 0,26 3,70 7,1Austria 0,54 8,10 6,7Spain 1,98 39,30 5,0France 2,79 58,60 4,8Italy 2,14 57,60 3,7Portugal 0,26 10,00 2,6Greece 0,24 10,50 2,3
USA 64 270,3 24 %
1. Based on the total population, including children
Source: Computer Industry Almanac. 1998 figures
Source: Population Estimates Program, Population Division,
U.S. Census Bureau
Source: Morgan Stanley Dean Witter
The Nordic countries are ahead of Europe
Nordic user rates in the rest of W Europe will result in 130 million users
Venture Partners Management
Internet Access on Any Device - A special Nordic Stronghold
MP3 Players1.3 million units shipped - 1999Source: Cahners, IDC
Personal Computers
Worldwide Installed Base (millions)1998E 1999E 2000E295 340 390
Source: IDC, TWP estimates
Personal Digital Assistants
Worldwide Shipments (millions)1998E 1999E 2000E7.4 10.7 14.8
Source: IDC
Internet Enabled
Wireless Phones
20
Venture Partners Management
US experience vs. European opportunities
Europe is catching up Europe is 2 - 3 years behind the US, but the gap is narrowing Although the Internet is a global medium, localisation is essential Heavy marketing spend predicted as Internet brands go mass market Barriers to entry are low, and there are abundant start up opportunities The European Venture Capital market is beefing up
Nordic start ups are well positioned The Nordic markets are ahead in terms of Internet, PC and mobile penetration Scandinavia is functioning as a test market Viable Nordic business concepts are being exported to Europe & the US There is plenty of activity among the Nordic entrepreneurs
The major European Internet brands will be established over the next 2 -3 years.
Nordic players are in a strong position to take a large share
The major European Internet brands will be established over the next 2 -3 years.
Nordic players are in a strong position to take a large share
Venture Partners Management
Presentation highlights
The Nordic and European Internet Space is an attractive investment opportunity due to the advanced stage of the Nordic countries and a strong European growth perspective.
Venture Partners Management has built a strong franchise for investing in Internet and related technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can be mitigated in several ways
Venture Partners Management
History
March 1994
Aug 1996
Feb 1997
Aug 1998
Sep 1999
Dec 1999
Venture Partners founded. First start up (HUGIN) initiated and launched 1995
Internet is seen as a market with significant upside. Work is initiated to establish an Internet Venture Fund
VPM I established with a funding of NOK 51 Mill.
VPM I is fully invested. VPM II is raised with a funding NOK 71 million
VPM LTS raises NOK 40 million from VPM I investors to follow up investment (pre IPO) in Stepstone.
VPM II is fully invested. VPM III is established with a funding of EURO 70 million.
Venture Partners Management
VP principles
Focus on industries we understand, in people we believe in and on entities that have a high international potential scaleable concepts and clear competitive advantages.
Exercise active ownership through significant share-holding in investment targets and deep involvement in management in critical phases.
Prioritise activities related to financial and strategic partnerships as well as exit opportunities with an objective of creating the highest possible return on the investment.
Follow Silicon Valley Venture Capital model: Board representation, involvement in fund raising and recruiting, pursuit of M& A activities and seeking VC investors for later financing rounds.
Focus
Hands on ownership
Value creationperspective
Pure VC approach
Venture Partners Management
The VPM III “Cluster”Venture PartnersA staff with both Internet and start up experience and a combination of skills necessary to run an outstanding Venture Capital entity
Venture AdvisersConsultants with 20 years combined experience inthe software / media industry
Advisory BoardKey experts in the fieldof technology and Internetthat advises on investmentsand follow up
International PartnersNetwork of Venture andtechnology partners in Europen and the US that Venture Partners works with on different occasions.
Entrepreneur NetworkEntrepreneurs in - and outside of portfolio companies that make time available for VPM and related companies
Venture Partners Management
Hands on approach Some examples
Bilguiden.no
Jobshop.no
Reisefeber.com
Initiated merger between Bilguiden and Interbil. Changed management and structure Initiated and negotiated merger with Bilweb in Sweden Active in preparing on-going Fund Raising
Initiated acquisition of Danish and Swedish players Initiated strategy work leading to a Pan European approach Brought in Geo Capital, Investor AB and Index Ventures in second round
financing Negotiated terms
Initiated the investment pro actively through dialogue with SOL Got new management structure in place Negotiated deal with Lastminute.com Negotiates potential acquisitions
Venture Partners Management
Venture PartnersMultimedia II(Invested 0898 - 0999)
71117
Commited Total Value
Financial performance
IRR 155%
IRR 66%
Note: IRR after carried interest 136% (before tax) Unrealized value estimates at latest transaction levels Value estimates are not discounted for junior securities held in venture backed rounds
51
537
Venture Partners Multimedia I(Invested
0397 - 0798)
Committed TotaL Value
Venture Partners Management
Track Record
STEPSTONELAST MINUTE
FILEFLOW
MASS MARKETSEVEN MOUNTAINS
BILGUIDEN
HUGIN
PORT AUTHORITY
REISEFEBER
SKIINFOSU-SOFT
Gorillas
3000 - 5000
Percent return
Funded for growthOn the ThresholdUnder Performers
MIKOSSALGSNETT
GURU SOFTWARE
50 -300
N.A.
Fund 1
Fund 2
Venture Partners Management
The Stepstone Story
March 97
VPM I acquires 50 percent of Jobshop forPrising: NOK 8 mill. (USD 1 mill)
May 97
Aggressive building of telesales organisation in Norway
June-Sept 97
Acquisitions in Sweden and Den-mark. Rapid organic growth and roll-out of unified product
2. Round of financing (USD 2 mill)Aggressive TV and internet advertising throughout Scandinavia,
Dec 97.-June 98
June-Aug. 98
German acquisition closed, European strategy defined
Oct. 98 - March 99
VCs invited into company, USD 17 mill closed with selected VCs
Apr.99-Oct. 99New management team, additional USD 15 mill. invested, Limited Partners in VPM I invest USD 5 million through VPM LTS., Morgan Stanley signed up as advisor
Venture Partners Management
Presentation highlights
The Nordic and European Internet Space is an attractive investment opportunity due to the advanced stage of the Nordic countries and a strong European growth perspective.
Venture Partners Management has built a strong franchise for investing in Internet and related technologies and is well positioned for a third fund
Venture Capital is by definition risky, but risks can be mitigated in several ways
Venture Partners Management
Risk Mitigation - investor perspective
10 %
40 %30 %
14 %6 %
Cash
Bonds
Stock listed shares
Private equity
Venture Capital
Typical Asset allocation for a professional investor
Venture Partners Management
Risk Mitigation alternatives from the venture capital perspective
Diversification related to selection of investment targets Sectors - Internet => IT, Telecom Geography/Region - Norway => Nordic Stage - Seed => Later Stage
DANGER: ILLUSIVE RISK REDUCTIONS
Venture Partners Management
Later stage not necessarily less risky than seed
• In theory risk is reduced the longer the company has lived
•In a booming market with high valuations, it might be more risky to invest in a Pre-IPO candidate or in a listed company than in selection of seed targets.
Earlystage
Seed IPO ListedExpan- sion
Venture Partners Management
How do we then invest ?
Invest in superior management teams
Invest in companies with a huge market potential
Establish milestones
Make use of advanced equity instruments
Team up with partners
The quality of the management is by far the most important element related to risk assessment
As long as the potential is large enough, and the business model is scalable, it is sufficient to have one “winner” to make a handsome return
Establish milestones related to technology, customers, partners or sales and if possible distribute equity in tranches
Use of preferred shares, convertible loans and other equity instruments may give the investor protection and a reduced down side in certain down side scenarios
The chances of success can be significantly increased by putting together a group of investors contributing with strategic, financial and networking skills
Venture Partners Management
Then what do we do when we have invested ?
Speed is the name of the game
Act immediately on underperformance
Put on high calibre management resources
Stay hands on and set clear targets as investor
Nothing puts the strategy in jeopardy as much as the lack of speed. Use external resources to avoid timelags in recruiting, M&A activities and so on.
Problems will grow if unattended. If budgets are not reached, they will not be fulfilled without prior action.
Furnish the company with competent managers. As a company grows internationally, new skills and experience has to be added.
Stay hands on and actively follow up the portfolio companies. Define a clear and ambitious strategy. Stay in close personal contact with top management
Venture Partners Management
My message
There are huge opportunities within Internet and technology Building a new business is great fun It is a great pity that you bright heads are planning to work
for established dull companies Do you want to miss the train ? We need you in our start ups’ Join us !!!