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David Cowan of Bessemer Venture Partners addresses the 2009 conference of the Israel Venture Association in Tel Aviv on May 19, 2009.
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…on the bitter and the sweet
David Cowan
Bessemer Venture Partners
ISRAEL VENTURE ASSOCIATION 2009
ר ַמ� ל ַה� ַע�תֹוק �ַמ ַה� �ְו
Bessemer Venture PartnersFounded 1911
Mumbai
HerzliyaBostonNew York
Califonia
Bessemer Venture PartnersFounded 1911
Mumbai
HerzliyaBostonNew York
Califonia
P-ComA.R.T.
Andre PerodFinance Professor
Harvard Business School
$100 Trillion
Page 13
USA Venture-backed M&A and IPO transactionsExit activity falls in the wake of the financial crisis
45
101
2111 13
2430 33
51
25
3
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Q1200
9
19.5 19.2
1.8 1.6 1.53.7
6.8
0.6
5
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Q1200
9
US venture-backed M&A transactions $Band number of transactions
US venture-backed IPO amount raised by transactions $B and number of transactions302 200 390 393 361 480 465 471 462 348 68 250 202 22 20 23 67 43 56 76 7
Source: Dow Jones VentureSource Note: chart scales vary for clarity
2.4
Pre Money valuations in Israel have caught up to the US
$7.8 $8.0 $9.0 $12.0 $13.0 $7.0 $20.0
2002 2003 2004 2005 2006 2007 2008
$10.8 $10.0 $12.3 $15.0 $18.0 $17.4 $23.1
2002 2003 2004 2005 2006 2007 2008
IsraelUnited StatesUS$ M
Source: Dow Jones VentureSource
US$ M
$3.9
$6.0
$7.8$8.2
$7.8$7.9$8.1$8.1
$7.3$6.6
$7.8$7.6
$6.5477
601635
701706725683
791
653640695713
640
$0
$2
$4
$6
$8
$10
1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09
0
150
300
450
600
750
Amount Invested ($B) Number of Deals
Investment Activity Declines in 1Q ‘09Deal Flow and Equity into Venture-Backed Companies
Am
ount
Inve
sted
($B) N
um
ber of Deals
Source: Dow Jones VentureSource
Are the LPs coming back?
1997 is last year with >0 median and mean return
Source: Thomson/Reuters. Data as of 6/30/08.
Why have LPs stayed in so long?
Venture Capital Vintage Year Performance
6.6%
16.8%
1.2%
8.0%
1.9%
9.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
10 years 20 years
Upper Quartile US Venture Funds S&P 500 NASDAQ Composite
Source: Returns are based on the cumulative net IRRs of U.S. venture capital funds formed in vintage years 1998-2007 and 1988-2007, respectively. Source: Thomson Reuters VentureXpert. Public market return data based on an ending date of June 30, 2008 for both indices. Source: Thomson Reuters/NVCA
“Top Quartile IRR” is a tease.
Economic returns are concentrated among the top quartile performers
Source: Cambridge Associates PE industry Review 2008
US Core/ Core Plus
Bonds
Em. Mkts. Equity
Global ex. US Equity
USLarge-Cap
US Small-Cap
Real Estate
US Buyout
US Venture Capital
(n=35) (n=32) (n=16) (n=131) (n=47) (n=197) (n=478) (n=853)
25th Percentile 8.12 17.98 12.52 14.08 15.97 26.87 23.39 21.5875th Percentile 7.66 15.51 9.95 12.35 13.72 10.56 6.15 -3.97
Median 7.79 17.17 10.92 13.08 14.90 16.45 13.01 4.54
Ave
rag
e A
nn
ua
l
Co
mp
ou
nd
Re
turn
(%
)
30%
25%
20%
15%
10%
5%
0%
(5%)
0.46
2.47
2.571.73
2.25
16.31
17.2425.55
Delta between top & bottom quartiles
When Great Companies Were Founded…When Great Companies Were Founded…
1980 1982 1984 1986 1988 1990 1992 1994 1996
FORE SYSTEMS
When Great Companies Were Founded…When Great Companies Were Founded…
2001 2002 2003 2004 2005 2006 2007
Big Markets
• Energy
• Internet
• Stem Cells
• Security
• Mobile
• India
• Web Video
• Social Gaming
• Virtualization
• SaaS
An LP inversion? Re-thinking conventional wisdom on fund access in venture capital
1. Endowments Stable, knowledgeable staffs Efficient decision-making Good causes Low maintenance (no FOIA, etc)
2. Fund-of-funds Knowledgeable Active on terms and monitoring May have to wait for next fund to be raised Need some attention so they can market funds
3. Pension funds Rotating staff Regulated High maintenance Large pools of capital being replenished with recurring stream of more funds
Subject to Liquidity IssuesMay be re-thinking Alt Asset Strategies
In a position to get into better funds? How will they take advantage of the moment?
Sovereign Wealth FundsAbu Dhabi Investment Authority (ADIA) United Arab EmiratesGovernment Pension Fund - Global NorwayGovernment of Singapore Investment Corporation SingaporeSaudi Arabia Monetary Authority (SAMA) Saudi ArabiaKuwait Investment Authority (KIA) KuwaitChina Investment Corporation (CIC) ChinaHong Kong Exchange Fund Hong KongTemasek SingaporeOil & Gas Fund RussiaQueensland Investment Corporation (QIC) AustraliaQatar Investment Authority (QIA) QatarFuture Fund AustraliaPension Reserve Fund FranceLibyan Investment Authority (LIA) LibyaFonds de Regulation des Recettes (FRR) AlgeriaAlaska Permanent Reserve Fund United StatesVictorian Funds Management Corporation (VFMC) AustraliaBrunei Investment Authority BruneiNational Pension Reserve Fund IrelandKhazanah Nasional BHD MalaysiaKingdom Holding Company (KHC) Saudi ArabiaNational Oil Fund KazakhstanKorea Investment Corporation (KIC) South KoreaNational Development Fund (Fonden) VenezuelaAlberta Heritage Fund CanadaNew Mexico Permanent Trust Funds United StatesEconomic and Social Stabilization Fund (FESS) ChileNational Stabilization Fund (NSF) TaiwanPublic Investment Fund (PTF) Saudi ArabiaDubai International Capital United Arab EmiratesExcess Crude Fund Nigeria
More Sovereign Wealth FundsExcess Crude Fund NigeriaNew Zealand Superannuation Fund New ZealandOil Stabilization Fund IranMubadala United Arab EmiratesDevelopment Fund for Iraq (DFI) IraqPula Fund BotswanaState General Reserve Fund OmanIstithmar World United Arab EmiratesPermanent Wyoming Mineral Trust Fund United StatesOil Stabilization Fund MexicoTimor-Leste Petroleum Fund East TimorState Oil Fund (SOFAZ) AzerbaijanHeritage and Stabilization Fund Trinidad & TobagoOil Stabliization Fund ColombiaState Capital Investment Corporation VietnamChile Pension Reserve Fund ChileInvestment Fund for Macroeconomic Stabilization VenezuelaRevenue Equalization Reserve Fund (RERF) KiribatiFund for Future Generations GabonNational Fund for Hydrocarbon Reserves MauritaniaReserve Fund for Oil AngolaEmirates Investment Authority (EIA) United Arab EmiratesInvestment Corp of Dubai United Arab EmiratesHong Kong Monetary Authority Investment Portfolio Hong KongNational Oil Account São Tomé and PríncipeNational Wealth Fund RussiaOil Income Stabilization Fund MexicoOil Revenue Stabilization Account SudanPalestine Investment Fund Palestinian TerritoriesReserve Fund RussiaReserve Fund for Oil AngolaTaiwan National Stabilisation Fund TaiwanTimor-Leste Petroleum Fund Timor-Leste
Resistant: Open Source, Virtualization, Low Cost Recurring
Revenue Models
Portfolio Analysis of Exposure to Changes in GDP
Immune: Cure Cancer , Cost Saving Non-Elective HC Services
Exposed: Consumer Products, Internet Display Ads, Elective
Surgery
Source: Scale Venture Partners
Since 2002, $2.8 billion invested in 325 companies
Page 18
Israel: Current status of VC-backed companies by year of initial financing
30
8
108
23
169
276 18
1996-2001
2002-2008
IPO M&A Private & Independent Out of Business
225
Source: Dow Jones VentureSource
Year of initial VC financing
325
► In Israel 325 companies have received initial VC financing globally since 2002 and US$2.8 billion has been invested in them to date.
► In the israel 70 Venture-backed M&A and IPO transactions were at 2007-2008
532
Page 19
Total capital invested to date in Israel VC-backed companies by year of initial financing and current status
$2,536.3
76
$134.9
$28.0
1996-2001
2002-2008
Source: Dow Jones VentureSource
Year of initial VC financing
►Israel Venture-backed M&A and IPO transactions value at 2007-2008 is $ 3.9B
$2.8B
$5.7B
Source: Dow Jones VentureSource
Bessemer’s Law of Internet Efficiency
Cost
1995 1999 2003 2007
“The time and money required to
produce (design, develop, test, launch,
scale) a basic e-commerce application
drops in half every two years.”
$300
$20,000
NetScape
Apache
Java
ActiveX
Flash
Shockwave
PHP
XML
Ruby on Rails
service APIs
Amazon S3
AJAX
Web Application Development
Votizen
Stage Shifting
IsraelNumber Of Deals
% Of Deals
Amount Raised ($M)
% Of Amount Raised
Median Amount Raised ($M) 1Q08/1Q09 Q408/Q109
Seed Round 3 9% 5 3% NS NA NA
First Round 8 24% 23 14% 2.6 -86% -67%
Second Round 8 24% 40 24% 4 -83% -63%
Later Stage 13 39% 80 49% 5.25 -64% -28%
Grand Total 33 100% 163 100% 3 -75% -51%
USASeed Round 22 5% 10 0% 0.415 -78.7% -59.5%
First Round 122 26% 672 18% 3.5 -62.2% -39.6%
Second Round 119 25% 902 24% 5.5 -45.9% -34.8%
Later Stage 195 41% 2111 55% 7.5 -39.2% -32.3%
Recapitalization 12 3% 138 4% 8.15 -61.4% -41.2%
Grand Total 470 100% 3833 100% 5.5 -47.6% -34.8%
2009
Source: E&Y
Source: Lerner and Schoar [2007]
23
Bessemer’s Current Cleantech Portfolio
Sector Current Investments Seeking New Investments
Batteries andEnergy Storage
Smart Grid
Solar Power
Lighting
CleanTransportation
India
•Utility Scale•Electric Vehicles
•High MPG at low cost•Electric Vehicles
•Long-term opportunities to reduce cost, raise efficiency
•Opportunities throughout LED Lighting
•Smart Meters•Software Infrastructure
Israel Is A Center for Global Cleantech Activity
• Source: d&a info cleantech portal; company information
Over 300 companies active across multiple Cleantech segments…
And Israel Cleantech VC Deal Pace Has Been Increasing
Deal pace of Israeli cleantech investments
0
5
10
15
20
25
30
2004 2005 2006 2007 2008 YTD 2009
Dea
ls
• Source: Cleantech Group LLC, Venture Investment Database
26
Venture Capitalists Need to Get Back to Venture CapitalAnd Develop the Ecosystem of Staged Financing Opportunities
Stage of Company
Technical Research
Productization
Commercialization
Revenue Ramp / Pilot Project Development
Expansion / Project Equity
Mature Growth / Project Finance
2005-2008
Ven
ture
Cap
ital
Hed
ge F
un
ds /
Pri
vate
Eq
uit
y
Pu
blic M
ark
ets
2009-
Ven
ture
Cap
ital
Part
ners
/ P
E
Pu
blic
Lab
s /
En
trep
r.
Page 22
VCs are increasing their reserves for follow-on investments..► Generally, relative to a year ago, have "reserves for follow-on
investment" in your portfolio companies: Increased, decreased or stayed the same?
8%
16%
76%Increased
Decreased
Stayed the same
…on the bitter and the sweet
David Cowan
Bessemer Venture Partners
ISRAEL VENTURE ASSOCIATION 2009
ר ַמ� ל ַה� ַע�תֹוק �ַמ ַה� �ְו