Private Equity & Venture Capital Investing In China, India, Japan, Korea, SE Asia & Australia South East Asia Summit: 16 September LP/GP Relations Summit: 16 September Main Conference: 17-19 September JW Marriott Hotel, Hong Kong 15% Subscriber Offer Quote VIP: FKR2346SPOT on http://www.superreturnasia.com/fkr2346spot Dear Spotlight reader We will be in Hong Kong for this year’s SuperReturn Asia and as I am a speaker I’m pleased to offer Spotlight readers a special 15% discount should you be planning to attend. SuperReturn Asia 2013 brings together 160 speakers, including 55 international and Asian LPs and the best local GPs in a one-stop learning and networking shop, packed with interaction and high value face-to-face opportunities with around 800 senior attendees. I’ll be moderating a panel of Asian experts during the GP/LP Relations Summit on Fundraising Differentiation – The Insider View: How To Differentiate Yourself In A Crowded Fundraising Market. Kindest regards Mark O’Hare For all bookings & enquiries, please contact the SuperReturn Asia 2013 Team Quote VIP: FKR2346SPOT for your 15% discount Tel: +44 (0) 20 7017 7200 Email: [email protected] Web: http://www.superreturnasia.com/fkr2346spot Welcome to the latest edition of Private Equity Spotlight, the Private Equity Spotlight monthly newsletter from Preqin providing insights into private equity July 2013 performance, investors, deals and fundraising. Private Equity Spotlight combines information from our online Feature Article products Performance Analyst, Investor Intelligence, Fund Manager The Venture Capital Conundrum Profi les, Funds in Market, Secondary Market Monitor, Buyout Deals Analyst In this month’s feature article we look at the venture capital conundrum. Why are and Venture Deals Analyst. investors attracted to venture capital funds despite recent disappointing returns? Page 3 July 2013 Volume 9 - Issue 7 Industry Contribution FEATURED PUBLICATION: Taken from the newly-launched 2013 Preqin Investor Network Global Alternatives Report, Stephen Cravens from Cogent Partners tells us what investors need to know 2013 Preqin Investor Network Global when assessing potential private equity investment opportunities. Alternatives Report Page 8 2013 Preqin Investor Network Global Alternatives Report Preqin Industry News This month’s industry news looks at investor appetite for venture capital funds, as well as highlighting recent funds closes. Investor Network Page 10 www.preqin.com/pin Compare. Connect. Invest. Click here to fi nd out more or to download your free copy. The Facts New York: One Grand Central Place 60 E 42nd Street Fundraising – Q2 2013 fundraising statistics. Page 12 Suite 2544 New York, NY 10165 Investors – LPs at, above or below their target allocations to private equity. Page 13 +1 212 350 0100 Buyout Deals – A summary of private equity-backed buyouts in the eurozone. Page 15 London: Equitable House 47 King William Street Venture Capital Deals – A look at healthcare investments and exits. Page 16 London, EC4R 9AF +44 (0)20 7645 8888 Performance Update – PrEQIn Private Equity Quarterly Index. Page 18 Singapore: Funds of Funds– Statistics on Asia-focused fund of funds vehicles. Page 20 One Finlayson Green #11-02 Singapore Conferences – Details of upcoming private equity conferences. Page 21 049246 +65 6305 2200 You can download all the data in this month’s Spotlight in Excel. San Francisco: 580 California Street Wherever you see this symbol, the data is available for free download on Suite 1638 Excel. Just click on the symbol and your download will begin automatically. You are welcome to use the data in any presentations you are preparing, San Francisco, CA 94104 please cite Preqin as the source. +1 415 635 3580 Free Subscription: w: www.preqin.com Click here to sign up to receive your free edition of Private Equity Spotlight every month! e: [email protected] www.preqin.com/spotlight Twitter: www.preqin.com/twitter LinkedIn: Search for Preqin alternative assets. intelligent data. Feature Article The Venture Capital Conundrum Download Data The Venture Capital Conundrum Investor appetite for venture capital funds remains high and new funds keep on being launched into the space. However, overall returns are low in comparison to other funds and there is a feeling that the industry won’t return to the heyday of the 90s. Ignatius Fogarty looks to answer the venture capital conundrum and understand what drives investor appetite? Venture capital provides an important function in today’s economy Fig 1: Private Equity Horizon IRRs as of 31 December 2012 in assisting the growth of new and young companies. The goal of the venture capitalist is to identify new companies that they feel 30% have potential and provide equity to these fi rms at an early stage of their existence, with the overall goal of growing these companies 25% All Private and generating a return. There is the opportunity to make high Equity returns when investing in a venture capital fund, but there is also 20% Buyout the opportunity to lose a signifi cant amount of money as well. The 15% Venture 1990s saw the venture capital industry attract signifi cant publicity, as Capital venture capitalists invested in internet start-up companies, but when 10% Fund of the dot-com bubble burst many of these companies lost value very Annualized Returns Funds quickly and folded. One of the most notable of these was Pets.com, 5% Mezzanine which raised $82.5mn in an IPO in 2000, but folded nine months later. However, companies did survive the bubble and continue to 0% thrive; one of these, Amazon.com, continues to be at the forefront 1 Year to 3 Years to 5 Years to 10 Years to of e-commerce today. Dec-2012 Dec-2012 Dec-2012 Dec-2012 Source: Preqin Performance Analyst Performance of Venture Capital Funds Compared to other private equity funds, venture capital funds as an aggregate $47bn in capital commitments. In 2012, 229 venture a group have more recently produced lower average returns for capital funds held a fi nal close, securing an aggregate $32bn from investors; Fig. 1 shows Preqin’s horizon IRR data. Ten-year horizon investors as displayed in Fig. 2. IRR data to 31st December 2012 indicates that for all strategies, private equity generated a return of 19.0% and for buyout funds Investor appetite for venture capital funds has also increased over this was 23.4%; however, venture capital funds only generated an time. Twenty-eight percent of the LPs Preqin spoke to for its Investor average return of 4.4%. Outlook: Private Equity, H1 2013 that are looking to make new fund commitments in 2013, expected to commit to venture capital funds, Investor Appetite for Venture Capital as shown in Fig. 3. Furthermore, over 60% of investors tracked by Preqin’s Investor Intelligence online service have expressed an Despite other private equity strategies recently outperforming interest in, or have previously invested in, a venture capital fund, venture capital, investor appetite for this fund type remains strong which further demonstrates how widespread investor appetite for and fund managers are responding by launching new funds. As of this strategy is. July 2013, there were 397 venture capital funds seeking to raise Fig. 2: Annual Venture Capital Fundraising, 2000 - 2013 YTD (As at 03 Fig. 3: Proportion of Investors Planning to Make New Commitments July 2013) to Venture Capital Funds in the Next 12 Months, 2010 - 2013 500 461 H1 2010 20% 450 400 H2 2010 11% 358 349 350 342 No. of Funds 300 300 Closed 300 H1 2011 28% 252 257 252 249 250 229 229 199 Aggregate H2 2011 22% 200 Capital Raised ($bn) 150 H1 2012 15% 100 79 75 47 44 52 51 40 50 30 38 26 27 32 H2 2012 25% 16 14 13 0 H1 2013 28% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0% 5% 10% 15% 20% 25% 30% Year of Final Close 2013 YTD Proportion of Respondents Source: Preqin Funds in Market Source: Preqin Investor Interviews, 2010 - 2013 3 Private Equity Spotlight, July 2013 © 2013 Preqin Ltd. www.preqin.com Feature Article The Venture Capital Conundrum Download Data Fig 4. Venture Capital Net IRR Dispersion by Vintage Year Fig 5. Venture Capital - Minimum, Median and Maximum IRRs by Vintage Year 25% 200% 20% 150% 15% 100% 10% Maximum IRR 5% 50% Median IRR 0% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Net IRR since Inception Minimum IRR -5% Net IRR since Inception -50% -10% -100% -15% 2000 2002 2004 2006 2008 2010 2012 Vintage Year -150% Vintage Year Source: Preqin Performance Analyst Source: Preqin Performance Analyst The Big Draw performing fund generated a return of -36.5%. The best funds of each vintage year are performing very well; however, the worst So what attracts investors to the venture capital industry when performing funds have negative IRRs, clearly demonstrating the it appears that, overall, the industry has not been performing as importance of selecting the best fund managers. Fig. 6 shows well as other fund types such as buyout? Looking further into the the Preqin Venture Capital Benchmark and demonstrates that the numbers, we can see that even though the overall benchmark majority of Q3 IRR quartiles are in the negative. In the 1990s the may indicate that, as a group, venture capital funds may not have industry was performing very well; looking at vintage 1997 funds, performed well, individually there are some great performing funds, the median IRR was 29.8% and the maximum was 267.8%. Preqin which drives overall investor sentiment. Fig. 4 shows the IRR has identifi ed over 164 venture capital funds with an IRR of over dispersion of venture capital funds, highlighting the difference in 30%.