AI, Autonomous Cars, Drones and More How tech innovation is transforming the world and generating investment returns Brijesh Jeevarathnam Adams

Transcription

1 AI, Autonomous Cars, Drones and More How tech innovation is transforming the world and generating investment returns Brijesh Jeevarathnam Adams Street Partners

2 AI, Autonomous Cars, Drones and More How tech innovation is transforming the world and generating investment returns Presented by: Brijesh Jeevarathnam / Adams Street Partners

3 Confidentiality Statement and Other Important Considerations This presentation (the Presentation ) has been provided to the recipient on a confidential and limited basis and for educational purposes only. The recipient agrees not to copy, reproduce or distribute the Presentation, in whole or in part, to any person or party without the prior written consent of Adams Street Partners. This Presentation is not investment advice or an offer or sale of any security or investment product or investment advice. Offerings are made only pursuant to a private offering memorandum containing important information. Statements in this Presentation are made as of the date of this Presentation unless stated otherwise, and there is no implication that the information contained herein is correct as of any time subsequent to such date. Projections or forward looking statements contained in the Presentation are only estimates of future results or events that are based upon assumptions made at the time such projections or statements were developed or made. There can be no assurance that the results set forth in such forward looking statements will be attained. General economic factors, which are not predictable, can have a material impact on the reliability of projections or forward looking statements. 3

4 Introduction 4

5 Today s Discussion 1. Technology advances are accelerating, rapidly transforming the world 2. Investors can access this transformation to generate strong financial returns 3. Venture Capital represents an excellent way to invest in emerging Tech innovation 5

6 1. Tech Advances Are Accelerating, Transforming the World 6

7 Early Technology Eras Lasted Millennia Stone Age Iron Age 2,000,000 BCE 3300 BCE 1200 BCE Bronze Age 7

8 Until James Watt s Steam Engine Changed the World, Source: 2017 PBS & WGBH Educational Foundation Late Eighteenth Century 8

9 Catalyzed A Revolution That Lasted Centuries, 9

10 .And, Bent the Curve of Human Development Source: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. 10

11 Subsequent Technological Progress Keeps Accelerating Eras Last Decades, Not Centuries Electrification/ Mass Production Information Age s Industrial Revolution Electronics Age 11

12 We are now in the Information Technology Age 12

13 Information Technology (IT) Advances Have Built on a Long History of Innovation Punch Cards Electric Computer (ENIAC) Portable Computer Touch-Based Computing QWERTY Keyboard Mainframe Computer Mobile Computing Voice-Based Computing 13

14 And Exceeded the Expectations of Some of the World s Brightest Minds "I think there is a world market for maybe five computers. Thomas Watson, president of IBM, 1943 "There is no reason anyone would want a computer in their home." Ken Olsen, founder of Digital Equipment Corporation, 1977 "No one will need more than 637KB of memory for a personal computer." Bill Gates,1981 "I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse. Robert Metcalfe, 3Com founder and inventor of Ethernet,

15 Today, Information Technology Seems Pervasive in the Headlines Ford just invested $1 billion in self-driving cars 15

16 And in Our Everyday Lives Made a phone call Purchased something Ordered out/ate out Hailed a Taxi Accessed Made a reservation Navigated using GPS Circa

17 Moore s Law Predicted Exponential Gains in Compute Power Over Time In 1960 Gordon Moore, a founder of Intel, accurately predicted that processing power for computers will double every two years 17

18 Moore s Law Predicted Exponential Gains in Compute Power Over Time In 1960 Gordon Moore, a founder of Intel, accurately predicted that processing power for computers will double every two years Source: 18

19 The Cost of Compute and Storage Has Collapsed $1,000, Storage (Average Cost Per GB) $1,000, Processor Speed ($ per MSOPS*) $100, $100, $10, $10, $1, $1, $ $ $ $ $ $10.00 $ $ $1.00 $ $ $0.10 $ $ $0.01 $ *Million standardized operations per second Source: GP Presentation. Nordhaus, William, The Progress of Computing, Version 4.4, Appendix Table 2,

20 Household Electronics Today Generally Have as Much Compute Power as the Computers that Landed Apollo 11 on the Moon Source: ZME Science. 20

21 The Compute Power of An iphone7 Overwhelmingly Exceeds That of Apollo 11 Computers Launched in 1969 Launched in 2016 >80 Million Times Faster Source: ZME Science. 21

22 Major Tech Trends Are Converging Increase in compute power and availability fueling mega trends in technology 1. Internet everywhere 2. Mobile everything 3. Cheaper, more efficient storage 4. Massive amounts of data 5. Machine learning 6. Cloud computing Technology is becoming more ingrained in everyday life, and leading companies / figures in the technology industry have become household names 22

23 Consumers Are Adopting Technologies Faster Than Ever 60 Years to 50% US Market Penetration Time Period Introduced: Telephone Washing Machine Cellphone Internet ~1870 s ~1925 ~1980s ~1990s Source: NY Times 23

24 Smartphones Everywhere, Internet Access Ubiquitous Smartphone Penetration of Mobile Phone Market 90% 80% 75% 79% 81% 70% 65% 60% 54% 50% 40% 42% 30% 20% 10% 0% 27% 17% 11% 2% 3% 6% Source: comscore MobiLens, U.S., Age 13+, 3 Mo. Avg. Ending Dec Mo. Avg. Ending Dec

25 Providing Affordable Access to Technology for the World Internet Users Worldwide (Billions) <5% of World Population 50% of World Population 0.0 Source: Internet World Stats. 25

26 The World is More Connected Than Ever, a Development Which Looks Set to Continue Share of world population connected to the internet from 2016 to p.a p.a. 53.2% 38.2% 55.4% 57.5% 41.6% 44.5% 59.7% 46.9% 61.8% 48.8% 63.9% 50.5% Internet penetration Mobile penetration Source: Statista Digital Market Outlook Note: Figures account for total world population using the internet / a smartphone within the last 12 months 26

27 Information Technology Is Eating the World Disrupting every piece of the consumer pie Distribution of Consumer Wallet by Category (1) Education Apparel Other Entertainment Housing Healthcare Pensions and Social Security Food Transportation Source: U.S. Bureau of Labor Statistics. 27

28 AirBnB vs Traditional Hospitality Companies Valuation (USD Bn) # of Rooms # of Countries AirBnB AirBnB 31 1,000,000 AirBnB 190 Hilton 29Hilton 721,000 Hilton 94 Mariott 22 Mariott 710,000 Mariott 79 Starwood 14 Starwood 348,000 Starwood 100 Source: Public Sources. 28

29 Transforming the Enterprise Only 6% of the 6% $4 Trillion in IT spend today is spent on cloud software Source: GP Presentation. 29

30 Providing Affordable Access to Technology for the World 4.0 Billions of Internet Users Worldwide Delivering More Apps and Services Over the Internet Scalable Public Cloud Infrastructure Private Cloud Infrastructure Source: Internet World Stats. 30

31 Technology is Transforming Every Major Industry Lets Take a Closer Look at Technology s Impact on Three Big Industries: 1 Automotive 2 Healthcare 3 & Manufacturing Logistics 31

32 1 Automotive: Three Major Forces Transforming This Massive Industry Private Car Ownership Ride-Sharing Network Human Driving Autonomous Combustion Engine Electric Vehicles 32

33 Private Car Ownership Giving Way to Shared / On Demand On Demand Transportation 162,600,000 Rides in ,000,000,000 Total Rides 1,000,000,000 Rides in 2015 New Ways of Renting Cars Source (# of rides, left to right): Business Insider; The Verge (as of June 2016); The Verge. 33

34 Autonomous Driving MONITORED DRIVING NON-MONITORED DRIVING DRIVER ONLY ASSISTED PARTIAL AUTOMATION CONDITIONAL AUTOMATION HIGH AUTOMATION FULL AUTOMATION Source: GP Presentation. 34

35 Autonomous Driving Source: Uber; Google. 35

36 Autonomous Driving 36

37 Market Valuation of New Entrants to Auto Industry Rival Those of Incumbents Market cap/valuation of selected companies in 2017 (in US$ billion) Automobile Manufacturers New Entrants Toyota Motor Corp Daimler AG Volkswagen AG Uber Technologies Inc General Motors Co. Tesla Motors Inc Didi Chuxing 33.8 Lyft Inc. ANI Technologies Pte Ltd. (Ola) Grab Taxi Holdings Pte Ltd Source: Yahoo! Finance, CB Insights, livemint Note: Market cap as of

38 The Automobile and Tech Industries Are Colliding Auto makers have come to Silicon Valley Source: WSJ. 38

39 Ripple Effects from Auto Transformation Retail Delivery Autonomous, Electric, Shared Automobiles Auto Insurance Rental Car Industry Urban Planning 39

40 Technology is Transforming Every Major Industry Lets Take a Closer Look at Technology s Impact on Three Big Industries: 2 Healthcare 40

41 2 Healthcare: Moore s Law is Transforming Life Sciences $100,000, Cost of Gene Sequencing $10,000, $1,000, $100, $10, $1, $ $10.00 $1.00 $0.10 $0.01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Cost per Mb* Cost per Genome Sequenced * The cost of determining one megabase (Mb; a million bases) of raw, unassembled DNA sequence data. Source: 41

42 Convergence of Advances in IT and Life Sciences Are Transforming Healthcare IT Advances Life Science Advances Data Science Machine Learning Computer Vision Consumerization of Healthcare Prevention Diagnosis Treatment Gene Sequencing Gene Editing Targeted Therapeutics Behavioral Medicine 42

43 Disease Prevention: Using Data and Behavioral Medicine 43

44 Diagnosis: Deep Learning Algorithms and Computer Vision Leading to Better Anomaly Detection 44

45 Diagnosis: Deep Learning Algorithms and Computer Vision Leading to Better Anomaly Detection 45

46 Using Big Data and Machine Learning to Diagnose Earlier and Treat Better 46

47 Treatment: Gene Editing Has Potential to Eliminate Certain Diseases 47

48 Technology is Transforming Every Major Industry Lets Take a Closer Look at Technology s Impact on Three Big Industries: 3 & Manufacturing Logistics 48

49 3 Manufacturing & Logistics: Multiple Vectors of Change Advanced Materials Drones 3-D Printing 49

50 Logistics: Drones 50

51 Logistics: Drones 51

52 Logistics: Delivery Robots Robots to deliver Yelp Eat24 dinners in two SF neighborhoods 52

53 Manufacturing & Logistics: 3-D Printing 53

54 2. Investors Can Access this Transformation to Generate Strong Financial Returns 54

55 New Technology Trends are Creating New Markets Companies organized by year of founding Search Communications and Social Media ecommerce Sharing Economy Source: Pitchbook 55

56 Tech is Becoming a Larger Portion of the Economy 12/31/ /31/ /31/2016 Tech Companies % of S&P 500 Market Cap 15.1% 18.6% 20.8% Tech Companies % of S&P 500 Revenues 15.9% 17.4% 19.4% Source: CapitalIQ, as of March

57 Tech has Performed Well in the Public Markets 300% S&P 500 Russell 2000 IT 250% 200% 150% 100% 50% 0% CapitalIQ as of May 1,

58 Tech has Performed Well in the Public Markets 160% 147% 140% 120% 100% 92% 80% 70% 72% 69% 60% 57% 59% 40% 20% 16% 34% 24% 27% 25% 0% 1 Year Return 3 Year Return 5 Year Return 10 Year Return S&P 500 Russell 2000 IT Chart reflects total return over respective periods. Source: CapitalIQ as of May 1,

59 Tech Companies Now Among Largest by Market Capitalization Intellectual & Human Capital Physical Capital $406B $356B $272B $261B $260B $446B $383B $327B $293B $273B $406B $376B $277B $237B $228B Top 5 Publicly Traded Companies (by Market Cap) Tech Other $803B $653B $533B $455B $436B Market capitalizations as of December 31 st for each respective year; 2017 market capitalization as of May 9,

60 3. Venture Capital Represents an Excellent Way to Access Emerging Tech Innovation 60

61 What is Venture Capital? Venture Capital Growth Equity LBO or IPO Revenue Time 61

62 Some Famous Venture Backed Companies Source: Pitchbook as of 4Q

63 US Venture Fundraising Run Rate $ Raised in Billions Fund Count * 0 Source: Pitchbook * 2017 represents annualized data as of May 1,

64 Private Investors Have Benefitted from Pre-IPO Value Creation Market capitalization at IPO vs. today $170 Billion Today $453 Billion $536 Billion $19 Billion Today $26 Billion* $442 Billion $82 Billion $8.3 Billion $8.9 Billion $225 Million $560 Million $690 Million Cisco Amazon Microsoft Workday LinkedIn Facebook 1980 s 1990 s 2010 Present *Reflects Microsoft s purchase price in June Source: Capital IQ as of 5/1/

65 Median Time from Initial Venture Capital Equity Funding to Exit As of December 31, Number of Years IPO M&A Companies are staying private longer Source: Pitchbook as of 4Q

66 Venture Industry Has Attractive Returns, With Wide Dispersion Between Quartiles As of December 31, % Dispersion of Burgiss Returns Net IRR 95 th Percentile 75 th Percentile Median 25 th Percentile 5 th Percentile 40.0% 38.9% 42.5% 30.0% 31.3% 28.5% 20.0% 10.0% 0.0% 17.4% 8.7% (1.1%) 14.8% 8.8% 3.3% 15.9% 10.1% 5.2% 15.9% 7.1% (3.0%) (10.0%) (20.0%) (15.3%) (10.1%) (20.3%) (30.0%) (31.5%) (40.0%) Small LBO (<$1.0bn) Medium LBO ($1.0bn -$3.0bn) Large LBO ($3.0bn+) Venture Source: The Burgiss data presented here includes a set of funds in Asia, Europe, and US regions with vintage years which are invested on a primary basis in venture capital and buyout partnerships, and excludes secondary investments. Numbers are subject to updates by Burgiss. Burgiss is a recognized source of private equity data, and the Burgiss Manager Universe includes funds representing the full range of private capital strategies. All net IRRs are net of GP fees, carried interest, and expenses. Calculations by Burgiss. Data sourced on May 02, Performance as of December 31,

67 Venture Industry Has an Attractive Dispersion of Returns 30.0% 25.0% Dispersion of Returns 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% U.S. Fixed Income U.S. Large Capitalization Equity U.S. Small Capitalization Equity U.S. Leveraged Buyouts U.S. Venture Capital 25 th Percentile Median 75 th Percentile Active manager returns by quartile for period ending June 30, Fixed income and marketable equity performance based on annualized ten-year returns of BNY Mellon manager universes, adjusted for fees. Venture capital and LBO based on annualized since-inception IRRs of Cambridge Associates manager universes. Source: Yale Endowment, 2012 Report. 67

68 Access to Top Performers is Important Persistence of returns in venture capital Top 5% 42.5% 49% 1 st Quartile 2 nd Quartile 3 rd Quartile Bottom 5% 15.9% 7.1% (3.0)% (20.3)% Of 1st Quartile Funds Generate A Subsequent 1st Quartile Performing Fund 65% Of 1st Quartile Funds Generate A Subsequent 1st Quartile or 2nd Quartile Performing Fund Source: Burgiss; Has Persistence Persisted in Private Equity? Evidence From Buyout and Venture Capital Funds 68

69 Keys to Building a High Performing Venture Capital Portfolio Manager selection, access, and portfolio construction are paramount Build a high-quality, concentrated portfolio of Venture managers Keep a long-term investment horizon Manage consistent exposure across time (and cycles) 69

70 Summary Technology advances are accelerating, rapidly transforming the world Investors can access this transformation to generate strong financial returns Venture Capital represents an excellent way to invest in emerging Tech innovation 70

71 Additional Questions? Brijesh Jeevarathnam Partner & Co-Head of Global Venture Fund Investments / brijesh@adamsstreetpartners.com 71