Click to edit Master title style The State of the Venture Capital Industry Click to edit Master text styles

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1 The State of the Venture Capital Industry Bobby Franklin President Third & level CEO of NVCA Southeast Venture Conference March 16

2 Overview Click Venture to edit capital Master stats text at-a-glance styles Trends & insights Looking ahead: public policy, political landscape, & areas of focus for NVCA in

3 Venture Capital Stats At-A-Glance

4 Pace Click of to Fundraising, edit Master Investment, title style and Exit Activity by Number Slows in VC Fundraising (No.) Second 214 level VC Exits (No.) VC Investment (No.) IPO M&A Source: Thomson Reuters 4

5 $ Billions VC Dollars Invested Increased for 3 rd Consecutive Year in 2015; Hit Highest Annual Mark since 2000 $60 $50 $40 $30 VC Fundraising, Investment, IPO, and M&A Activity $20 $10 $ VC Fundraising VC Investment VC IPO* VC M&A** *Offering Amount at IPO **Only includes values for DISCLOSED M&As. Source: Thomson Reuters 5

6 The Industry in Numbers In 2015, 718 firms each invested $5M or more during Third the year, level of which 238 invested in first Fourth fundings level 798 firms have raised a VC fund in the past 8 years and manage 1,224 individual funds Venture capital under management in the U.S. by the end of 2015 increased to $165B, reversing a three-year contraction of the industry 210 Distribution of Firms by Capital Managed Source: Thomson Reuters 6

7 16 States Have $1B+ in Venture Capital Under Management 2015 Venture Capital Under Management by State ($B) Second CA level $90.6 MA $23.6 WA $2.8 NY $21.6 PA $2.4 IL $2.0 MD $1.7 MI $1.4 VA $1.3 NJ $1.1 $4.7B is Managed by Firms in DC, MD, and VA TX $2.5 CT $2.2 DC $1.7 CO $1.6 TN $1.2 Other States $6.2 NC $1.4 Source: Thomson Reuters 7

8 VC Trends & Insights

9 CA Continues to Dominate Investment; VA & MD in Top 10 Note: 22 DC-based companies received venture funding in Fourth GA level TN 63 2% VA 62 2% CO 74 2% Annual Companies Receiving VC Funding by State (No. of Companies and % of Total U.S.)» MDFifth 1% level 61 2% IL 86 2% WA 100 3% NC 1% 59 TX 133 4% Other % PA 171 5% MA 349 9% NY % CA % Source: Thomson Reuters 9

10 Washington-Arlington-Alexandria Ranks 7 th Nationwide for VC Activity Top 20 MSAs by No. of Companies Receiving VC Funding in 2015 Metropolitan Statistical Area (MSA) No. of Deals No. of Companies Amount ($M) San Francisco-Oakland-Fremont, CA $21,043 New York-Northern New Jersey-Long Island, NY-NJ-PA $6,981 Boston-Cambridge-Quincy, MA-NH $5,582 San Jose-Sunnyvale-Santa Third level Clara, CA $6,238 Los Angeles-Long Beach-Santa Ana, CA $4,482 Seattle-Tacoma-Bellevue, WA $1,172 Washington-Arlington-Alexandria, DC-VA-MD-WV $924 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $516 San Diego-Carlsbad-San Marcos, CA $1,167 Pittsburgh, PA $199 Chicago-Naperville-Joliet, IL-IN-WI $1,104 Austin-Round Rock, TX $740 Atlanta-Sandy Springs-Marietta, GA $836 Denver-Aurora, CO $540 Baltimore-Towson, MD $445 Nashville-Davidson-Murfreesboro-Franklin, TN $136 Portland-Vancouver-Beaverton, OR-WA $161 St. Louis, MO-IL $254 Minneapolis-St. Paul-Bloomington, MN-WI $369 Boulder, CO $231 Source: Thomson Reuters 10

11 Investment in Software Increasing, Biotech. Declining IT Services, 9% Media & Entertainment, 10% Networking & Equipment, 11% Telecomm., 15% Percent of Annual VC Dollars by Top 5 Industries, 2000 vs vs vs Other, Second level 31% Softwa re, 24% Semiconductors, Fourth 8% level Telecomm., 9% Medical Devices & Equipment, 9% Biotechnology, 17% Other, 33% Softwa re, 23% IT Services, 7% Medical Devices & Equipment, 11% Industrial/Energy, 14% Biotechnology, 17% Other, 29% Softwa re, 22% IT Services, 7% Media & Entertainment, 8% Consumer Products & Services, 8% Biotechnology, 13% Other, 24% Softwa re, 40% Source: Thomson Reuters 11

12 No. of Deals % of Total VC Dollars Invested No. of Early Stage Deals has Increased 2.2x since 2009; Account for 1/3 of VC $ No. of Venture Capital Deals by Stage, ,500 2,000 1,500 1,000 45% 2,215 40% 35% 30% 25% 1,145 20% % % of Total VC Dollars Invested by Stage, % 34% 27% % % 0% % Seed Early Expansion Later Seed Early Expansion Later Source: Thomson Reuters 12

13 No. of FTFs 2 Out of 5 Companies Received VC Funding for Click First to Time edit in 2015; Master FTFs for title Early style Stage Companies Growing 3,709 Companies Received VC Funding in ,200 1, No. of First-Time Fundings (FTFs) by Stage of Development, ,023 1,444 (or 39%) Companies Received VC Funding for the First Time Seed Stage Early Stage Expansion Stage Later Stage

14 % of All VC Corporate Venture Groups Increasing Their Involvement in Entrepreneurial Ecosystem % of Annual Venture Capital Activity with Corporate Venture Involvement, % 25% 20% 15% 10% 21% 13% 5% 0% % of Deals w/cvc Involvement % of Dollars from CVCs Source: Thomson Reuters 14

15 The Rise of Unicorns? Global Annual Number of New Unicorns and Total Number of Unicorns*, U.S.-based companies account for 93 of the No. of Unicorns Cumalitative No. of Unicorns No. of Companies Reaching Unicorn Status *Private companies valued at $1B+ as of 12/31/15 Source: CB Insights 15

16 % of Venture-Backed Exits About 1 Out of 5 Venture-Backed Exits is an IPO 100% 90% 80% 70% 60% 50% Venture-Backed Exits: IPOs vs. M&As, % 30% 20% 10% 0% 70% 49% 55% 39% 29% 9% 6% 7% 17% 12% 12% 16% 2% 4% 11% 9% 9% 17% 20% 18% % IPOs % M&As Source: Thomson Reuters 16

17 % of All IPOs Venture-Backed Companies Account for Over 40% of All IPOs 100% 90% 80% 70% 60% 50% Venture-Backed IPOs as a % of All IPOs, % 30% 48% 20% 38% 29% 31% 35% 34% 28% 31% 34% 44% 30% 34% 45% 43% 42% 10% 22% 17% 21% 22% 10% 0% Venture-Backed Not Venture-Backed Note: Reflect IPOs on U.S. stock exchanges and markets. Venture-backed IPOs are those with at least one US-domiciled venture fund investor. Source: Thomson Reuters 17

18 $ Billions $ Billions Venture-Backed IPOs: A 20-Year View $30 $20 $10 $0 $800 $600 $400 $200 Venture-Backed IPOs, Offer Amount ($B) No. of IPOs No. of IPOs Years $ Median Offer Amt. ($M) Median Post Value ($M) Median Time to Exit (Yrs.) 0 18

19 % IRR (Net to Limited Partners) VC Consistently Outperforms 30 Click to edit Master text styles U.S. Venture Capital Fund Index Summary: End-to-End Pooled Return U.S. VC - Early Stage* U.S. VC - Late & Expansion Stage* U.S. VC - Multi-stage* U.S. Growth Equity* Dow Jones Industrial Average S&P 500 Nasdaq Composite Quarter 1-Year 3-Year 5-Year 10-Year Source: Cambridge Associates data as of September 30, *Pooled end-to-end return, net of fees, expenses, and carried interest. 19

20 Beyond Financial Returns: Analyzing the Impact of VC VC-backed companies account for 556 (or 42%) of the 1,339 public companies founded after % 61% Market Capitalization $4.4 trillion Net Income $151 billion VC-backed public companies employ 8.1 million people Note: Data as of 2014 Source: The Economic Impact of Venture Capital: Evidence from Public Companies. Will Gornall, Sauder School of Business, University of British Columbia; and Ilya A. Strebulaev, Graduate School of Business, Stanford University and National Bureau of Economic Research 85% Research & Development $115 billion VC-backed Companies as % of All 20

21 Looking Ahead Public policy, political landscape, & areas Third of level focus for NVCA in 2016

22 % of Global Venture Capital Invested U.S. Has Been Losing Global VC Market Share 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % of Global Venture Capital Dollars by Company Location, % 13% 15% 18% 18% 17% 14% 13% 13% 11% 15% 9% 15% 12% 17% 12% 24% 17% 83% 86% 82% 83% 78% 71% 73% 69% 69% 67% 60% 61% 59% 60% 59% 68% 67% 62% 53% 54% U.S. China (incl. Hong Kong) India Asia-Pacific - Other Europe Rest of World Source: Thomson Reuters 22

23 Tax Click Reform to edit is Opportunity Master title to style Strengthen Entrepreneurial Ecosystem 23

24 Drug Pricing in the United States What we need to do is find approaches and strategies that balance both innovation, because we want that R&D to get the best things, but create some downward pressure. HHS Secretary Sylvia Mathews Burwell 24

25 Engaging Click to on edit Patent Master Reform title to Protect style Venture Capital Firms As Patent reform has heated up on the Hill this year, one of the groups in the spotlight has been the National Venture Capital Association, which has pushed for changes to the two main patent reform bills, the House s Innovation Act and the Senate s PATENT Act. 25

26 Strengthening Click to edit our Master Capital title Markets style to Support Entrepreneurial Ecosystem 26

27 The First Two Years of a New Administration are Critical NAFTA Family and Medical Leave Act Assault Weapons Ban Deficit Reduction Two of Largest Tax Bills in Modern History Two Declarations of War Prescription Drug Program $700 Billion Economic Stimulus Package Affordable Care Act Dodd-Frank Financial Reform 27

28 Political Landscape: Trump vs Hillary? 28

29 Congressional Control: All Action in Senate Races Source: University of Virginia Center for Politics 29

30 If you d like a copy of this presentation or if you have any Second questions level about NVCA, please contact: Questions? Bobby Franklin bfranklin@nvca.org or contact research@nvca.org