State of Venture Capital in the Southeast Q Executive Summary Pacing vs. 2016*

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1 Executive Summary Venture capital in the U.S. continues to flow at historically high levels, largely driven by later stage deals, with total invested capital on pace through August for an all-time record in both the Southeast ($4.2B) and nationally ($70B). Exits have declined moderately, primarily due to lower corporate M&A activity, though the Southeast received a significant bump from PetSmart s $3.4B acquisition of Chewy. The bright spot of exit activity is that the IPO market appears to be picking up. In the near to mid-term, we are bullish on the Southeast market and cautiously optimistic about the US as a whole. We see no signs of a widespread bubble bursting over the horizon, but perhaps a healthy gradual correction, particularly in certain regions. While accounting for only a modest portion of the national activity, the Southeast remains one of the most productive regions in terms of exit value relative to dollars invested Pacing vs. 2016* *Figures show expected 2017 activity based on pacing through August compared to 2016 actual figures. Exits include venture backed companies only. Southeast includes Washington D.C., excludes Texas. See methodology overview at the end of the full report for more detail. 1

2 Vocap crafted the following report to provide perspective on the state of venture capital activity with a particular focus on the Southeast through a mix of data visualization and our own subjective commentary. See methodology overview at the end of this report for more detail on treatment of the data. Note: Washington DC is included in Southeast Investment Activity National Across all regions, investment activity continues at historically high levels. Key drivers include substantial amounts of dry powder needing to be deployed following a record period of VC fundraising, the continued rise of corporate venture and a relatively strong macro economy. Fund sizes continue to inch higher, which helps account for the increase in mid to late stage deals and overall expansion in deal value despite a slight decrease in deal count. The market is still early in digesting the glut of over 100 unicorns in the US, many of which crossed the $1B valuation threshold just in the last few years. This young generation of larger companies is likely viable as a group long term, but a large portion are still burning cash and will require additional capital from the private markets before exit. Thus far, most have been able to raise large chunks of capital thanks to favorable conditions, though perhaps not as freely as a couple years ago and often at flat or down rounds. At Vocap, we have seen these dynamics make their way upstream: as early as Series A and Series B, investors are becoming more conscious of the ability to access capital and maintain high valuations in subsequent rounds. 2

3 2017 Projected Based on Current Pace Southeast In the Southeast, investment activity remains strong but not quite at the peak levels of mid Each year since, the region has captured approximately 6% of VC dollars invested nationwide, slightly down from 2012 and Later stage investment is on track for a record year, suggesting a rising crop of maturing companies in the region, while early stage is maintaining pace and seed investing is down. Following Magic Leap s monster year of fundraising in 2016 involving the who s who of VCs, many are watching the Florida-based AR company s progress with much anticipation (though it is no secret they ve had their troubles, and some are dubious of the realness of 5 Largest Rounds in Southeast since 2010: 1. Magic Leap 2016 (Plantation, FL) * $793M 2. AvidXchange 2017 (Charlotte, NC)* $300M 3. Tenable Network Security 2015 (DC) $250M 4. Everfi 2017 (DC) $190M 5. Humacyte 2015 (Morrisville, NC) $150M *Multiple rounds raised. Largest per company featured. their tech which the broader public has yet to see). Consistent with the last several years, the SaaS and Mobile sectors continue to attractive the most capital. Healthcare Tech, Big Data and Cybersecurity are among the hotter sectors of 2017 in terms of investment growth. 3

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5 Key centers of activity remain Metro DC, Florida (Miami, Orlando, Tampa), Georgia (Atlanta) and North Carolina (Research Triangle, Charlotte). 5

6 Exits National Exit activity has followed a similar trend to investment activity in recent history: the number of VC backed exits are trending downward but total exit value, driven by larger deals, remains strong. Depending on the sector, strategic (corporate) acquirers currently have varying levels of appetite for new acquisitions. Adtech, for example, has seen a cooling in acquisitions while ecommerce has experienced an increase. Despite the slow pacing thus far in 2017, we expect exit activity to remain healthy over the near to mid-term due to relatively strong corporate balance sheets and an increasing appreciation among industry incumbents for the threat posed by young disruptors, among other factors. IPOs and financial buyouts are on the rise this year, a trend which we expect to continue as investors in later stage, stillprivate companies feel increasingly fatigued and inclined to cash in some chips Projected Based on Current Pace 6

7 Merger/Acquisition means strategic (corporate) acquisition. Buyout means financial buyout. Southeast The Southeast exit trends largely mirror the national trends on a smaller scale. However, the Southeast has proven to be the most productive region year over year, as measured by exit value relative to VC investment. The region consistently contributes ~10% of exit value nationwide despite capturing only ~6% of VC money and it is the only region that has not dipped below 1x exit value to investment dollars since The Southeast has also established a nice pace of one or more exits per year worth one billion dollars or more. This year s headline exit is Chewy, the online pet product retailer acquired by 5 Largest Exits in Southeast since 2010: 1. Chewy 2017 (Fort Lauderdale, FL) $3.4B 2. Cardioxyl Pharma 2015 (Chapel Hill, NC) $2.1B 3. Cvent 2016 (DC)* $1.7B 4. Zeevex 2010 (Atlanta, GA) $1.6B 5. AirWatch 2014 (Atlanta, GA) $1.5B *Take-private transaction. IPO occurred 3 years earlier. PetSmart for $3.4B. Substantial exits have been fairly evenly spread among the key geographic markets. Oddly, we have yet to see a major exit in 2017 that fits squarely in the SaaS sector. We view this as an anomaly and expect to see SaaS recapture its spot at the top of Southeast exit activity. 7

8 Projected # of Exits in Southeast by State Exit Value in Southeast by State 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Buyout of Zeevex for $1.6B Acquisition of AirWatch for $1.5B Acquisition of Cardioxyl Pharmaceuticals for $2.1B Cvent buyout (3 years after IPO) for $1.7B Acquisition of Chewy for $3.4B 0% %

9 VC Backed Exits in Southeast by Type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Includes: Appian (VA), Dova Pharma. (VA), G1 Therapeutics (NC), Visioneering Technologies (GA) VC Backed Exits in Southeast by Industry 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % Merger/Acquisition IPO Buyout SaaS Mobile Life Sciences Cybersecurity Manufacturing Other Exit Value to VC Investment in US Grand Total Southeast 3.0x 1.0x 1.8x 1.1x 1.8x 1.6x 1.1x 2.1x 1.7x Southwest 2.0x 0.9x 0.8x 0.9x 1.0x 2.7x 3.7x 1.1x 1.7x Midwest 3.2x 2.4x 1.6x 4.6x 1.0x 2.0x 1.3x 0.8x 1.6x West 2.3x 1.8x 1.8x 1.2x 2.0x 0.7x 1.0x 0.8x 1.2x Northeast 2.0x 1.8x 1.8x 1.2x 0.7x 0.6x 0.9x 0.6x 0.9x Total 2.3x 1.8x 1.8x 1.3x 1.6x 0.8x 1.1x 0.8x 1.2x METHODOLOGY OVERVIEW All data sourced from Pitchbook Data, Inc. 9