State of the Markets Views on Venture Investing in the Global Innovation Economy

June 25, 2019 Tech Rises to the Top

Following the hype and subsequent collapse of the dot-com era, tech companies have proven their importance (and value) to the US economy. Nearly one-third of the S&P 500 Index is represented by tech companies – the largest of any industry.

S&P 500 Tech Industry1 Weighting: 1999—2019 Largest S&P 500 Companies by Market Cap

35% 2000 31% 30%

2005 25%

2010 20%

15% 2015

10%

Q1’19 5%

0% 1999 2003 2007 2011 2015 2019 Tech Other

Note: 1) Technology industry includes Amazon as well as companies that were previously classified as Technology prior to the GICS industry reclassification in September 2018. Source: PitchBook, S&P Capital IQ and SVB analysis. 2 SVB Public Series C Valuations are on the Rise MEDIAN POST- MONEY VALUATION BY STAGE Series B

Series A $30.0M

$16.7M

Data as of 12/31/18 Sources: SVB Capital Proprietary Database

2014 2015 2016 2017 2018

3 SVB Public New Funds Move to Institutionalize Early Rounds

At the earliest stages, available to emerging innovation companies helped push round sizes for seed rounds well beyond their historical average, which had been in line with angel rounds. The return of capital from upcoming IPOs could push both round sizes higher. Early-Stage US Tech Median Round Size: 2010— US VC Fundraising: First-Time Funds 2018

$5.0B 50 $2.0M Angel Seed

$4.0B 40 $1.5M

$3.0B 30

$1.0M

$2.0B 20

$0.5M $1.0B 10

$0.0B 0 $0.0M 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Source: PitchBook and SVB analysis. 4 SVB Public $13.5M

C A is the New B $6.5M B is the New C $5.7M MEDIAN REVENUE AT FINANCING

B

$2.5M $2.4M

$672K A

2014 2015 2016 2017 2018

Data as of 12/31/18. Revenue is annualized based on the latest quarter of revenue at the time of financing. Sources: SVB Capital Proprietary Database

5 SVB Public Startups Are Better Capitalized Than Ever

Thanks to risk-incentivized and their buckets of cash, capital raises at every stage have more than doubled since the beginning of this decade. In fact, in order to make the top 100 deals of 2018, a startup would need to have raised a nine-figure round.

US Tech Venture: Median Round Size by Series US Tech Venture: 100th Largest Deal $100M $30M

Series C: 3.0x Series B: 2.5x Series A: 3.2x $74M Seed: 4.0x $63M $18M $70M

$60M

$10M $40M $8M $7M $32M $25M $3M $2M $0.5M

2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Sources: PitchBook and SVB analysis. 6 SVB Public Diverse Pools of Capital Chase Innovation Returns Traditional venture firms are no longer the only game in town. Newly professionalized and capital-rich investors are participating in venture rounds at an increasing pace, nearing the highs from 2015 in deal level and keeps surpassing those capital marks. Notable Family Offices Investors in Tech Venture1 Notable Private Equity Investors in Tech Venture1

VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: VC Deals: 79 63 59 42 28 42 31 31 26 22

Family Offices’ Venture in US Tech2 Private Equity Firms’ Venture Investment in US Tech2 $15B 300 $40B 1,200 Capital Invested Deal Count Capital Invested Deal Count $35B $12B 240 $30B 900

$9B 180 $25B $20B 600

$6B 120 $15B

$10B 300 $3B 60 $5B

$0B 0 $0B 0 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Note: 1) Deal count based on participation in US tech venture rounds from 2010–2018. 2) Investment dollars include full rounds that received participation from at least one from the class. Source: PitchBook and SVB analysis. 7 SVB Public VCs Raising More Capital with Each Trip Back to LPs Top firms are attracting more capital for each successive fund, climbing to almost 50% more than their prior fundraise. This trend helped contribute to records in 2018, including the most $500M+ funds and the first year with double-digit $1B+ funds. US VC Fundraising: Median Step-Up US VC Fundraising: $500M+ and $1B+ Funds in Fund Size for Same Family of Funds

1.50x+50% 25 $1B+ $500M+

20 1.25x+25%

15

1.00x0%

10

0.75x-25% 5

0.50x-50% 0 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Source: PitchBook and SVB analysis. 8 SVB Public Sizeable Cash Piles as Bull Run Breaks Records A decade of prosperity following the recovery from the Global Financial Crisis has left both traditional and emerging investors flush with cash for venture investing. Longest S&P 500 Bull Market Runs Since Accumulated Net Cash: 12/31/2018 1945 450% Likely to be Invested in June 1949 - Aug 1956 Potential to be Invested in Tech Dot-Com $125B Tech Oct 1974 - Nov 1980 400% $123B Aug 1982 - Aug 1987 $115B Oct 1990 - Mar 2000 350% Oct 2002 - Oct 2007 $100B Mar 2009 - Present 300%

250% Current $75B $80B

200% $64B

$50B $55B 150% $44B $41B 100% $25B

50%

Duration of Bull Market (Years) 0% $0B $6B US VC1 US PE1 SB VF2 0 1 2 3 4 5 6 7 8 9 Dry Powder Net Cash3 Notes: 1) VC and PE dry powder as of 3/31/2018 with SVB estimates for amount expected for tech investment. 2) Vision Fund dry powder remaining as of year-end. 3) Cash includes cash and ST and LT , net ST and LT debt. Sources: LPL Research, Yahoo, S&P Capital IQ, PitchBook and SVB analysis. 9 SVB Public Opting for vs. an Early Exit

With the abundance of available capital, firms are increasingly choosing growth rounds – even mega- growth rounds – over similar-sized exits. This could signal that companies want to mature before securing an even bigger exit. Or are these firms simply shying away from public market scrutiny? US Tech Mega-Rounds vs. Mega-Exits: 2010— US Tech Growth Rounds vs. Exits: 2010–2018 2018

150 150 Growth Rounds: $50M–$100M Mega-Rounds: $100M+ Exits: $250M–$1B Mega-Exits: $1B+ 125 125

100 100

75 75

50 50

25 25

0 0 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Source: PitchBook and SVB analysis. 10 SVB Public Expect IPOs to Continue Their Capital Climb

Before the flurry of private capital began in 2015, the average venture-backed tech company would raise $100M in private capital ahead of their $100M public offering. Looking at the current crop of US unicorns, more than 90% have already raised at least $100M in a single private financing.

Median Equity Raised Prior to IPO and via IPO by Percentage That Raised a Private Venture Round US Venture-Backed Tech Companies of $50M+ and $100M+ Prior to IPO

$400M 100% Capital Raised Prior to IPO $50M+ Round Capital Raised at IPO $100M+ Round

$300M 75%

$200M 50%

$100M 25%

$0M 0% Current US Current US 2010 2012 2014 2016 2018 2019 2010 2012 2014 2016 2018 2019 Unicorns Unicorns

Sources: CBInsights, PitchBook and SVB analysis. 11 SVB Public The Bar for an IPO is $ Market Cap Higher Than Ever 1.9B at IPO 2018/19 $ Revenue Before 226M at IPO

MEDIAN STATISTICS OF VC- BACKED TECH IPOS BY YEAR

$ Market Cap 639M at IPO 2014 $ Revenue 91M at IPO

Data as of 5/1/19 Source: Capital IQ

12 SVB Public Unicorns are Fundamentally Healthy MEDIAN STATISTICS

$116M 75% 65% $65M Revenue Annual Revenue Gross Margins Cash Balance Growth

Data as of 12/31/18 Sources: SVB Capital Proprietary Database

13 SVB Public Public and Private Investors Seeing Eye-to-Eye

Public and private investors have largely agreed on unicorn valuations, as the vast majority of the top billion-dollar debuts in 2018 and 2019 priced and remained above their last private round. That said, the IPO is just the beginning, as evidenced by Snap and Square’s reversal over the last couple years.

Valuation Relative to Last Private Valuation1: ’18—’19 US $1B+ Tech Market Cap: Square and Snap IPOs +2,690% 1000% $40B 2019 IPO: Value at 6/19/2019 900% 2018 IPO: Value at 6/19/2019 $35B 800% Value at IPO 700% $30B

600% $25B 500% $20B 400% Snap LPV1 300% $15B

200% $10B 100%

0% $5B Square LPV1 -100% $0B 2017 2018 2019

Note: 1) LPV is last private valuation from a priced venture equity round prior to IPO. Sources: S&P Capital IQ, PitchBook and SVB analysis. 14 SVB Public Innovation is Global

SELECT $1B+ EXITS IN 2018 & 2019

= SVB Office Select companies with $1B+ exit between 1/1/18 and 6/3/19. SVB Capital does not have exposure to all of the listed 15 companies

SVB Public US Tech Looks To International Opportunities The innovation economy’s best and brightest are putting their abundant capital to work abroad, with 20% of their acquisitions taking place outside of the US. On the back of a strong dollar, their capital is going even further for expansion overseas.

International Acquisitions by US Tech Unicorns Notable Int’l Acquisitions by US Tech Decacorns

25 Rest of World Asia Europe UAE United Kingdom $3.1B Acquisition $72M Acquisition 20 March 2019 Oct.2018

15 United Canada Demark France Kingdom $300M Acq. Acquisition Acquisition Acquisition Feb. 2017 Jan. 2019 Dec. 2018 Nov. 2017

10

Singapore China Spain Israel $500M Acq. $400M Acq. Acquisition Acquisition Aug. 2017 Apr. 2018 Nov. 2017 Aug. 2017 5

Israel Italy Canada Serbia

0 Switzerland UK Finland 2010 2013 2016 2019

Source: PitchBook, company websites and SVB analysis. 16 SVB Public Unicorns Rely on Capital Boosts From Abroad

It takes a village. In the cases of Uber and Lyft, a global network of investors played significant roles in financing their growth from startups to giants. Regulators will need to weigh both the benefits and consequences to foreign investment in U.S. tech companies.

Uber & Lyft: International Investors by Country

Canada United Kingdom Russia Japan

* *

Rest of Europe Middle East China

*

South America India & SE Asia Australia

Notes: 1) * Represents beneficial ownership of more than 5% at IPO Source: PitchBook and SVB analysis. 17 SVB Public Next Wave of Capital Will Come After Lockups

Early signs indicate 2019 should be the most robust year of value realization via IPOs for US venture- backed tech companies this decade. But the IPO listing is only the start of the journey for insiders, including venture firms, who must weather six months of market movement before exiting.

Aggregate Valuation of US VC-Backed Tech IPOs Post-IPO Performance for 2010–2018 US Tech IPOs Percentiles: $150B +70%

th +60% 90 $125B +50%

+40% $100B +30% 75th

20% $75B +

+10%

50th $50B 0% 1 3 5 7 9 11 13 15 17 19 21 23 25 -10% 25th $25B -20% 10th -30% $0B 2010 2013 2016 2019 -40%

Source: PitchBook, S&P Capital IQ, CBInsights and SVB analysis. 18 SVB Public % of Unicorn Value Realized in 2018 % of Remaining Unicorn Value We Expect 2019 will be a Year of US Liquidity

UNICORN VALUE REALIZED IN 2018 EXITS RELATIVE TO TOTAL REMAINING VALUE

2018 Exits

Europe China United States Data as of 6/3/19 Sources: PitchBook and Capital IQ

19 SVB Public % of Unicorn Value Realized in 2018 % of Remaining Unicorn Value We Expect 2019 will be a Year of US Liquidity

UNICORN VALUE REALIZED IN 2018 EXITS RELATIVE TO TOTAL REMAINING VALUE

2019 Candidates

2019 to Date

2018 Exits

Europe China United States Data as of 6/3/19 Sources: PitchBook and Capital IQ

20 SVB Public Nontraditional Industries Prime for Disruption

The traditional definitions for tech have eroded as innovation spreads to old guard industries. Areas ranging from beauty to construction are facing disruption from venture-backed companies.

US Venture Capital Investment: 2010–2018 AgTech: Beauty & FemTech: Construction Tech:

$1,500M $1,500M $1,500M

$1,000M $1,000M $1,000M

$500M $500M $500M

$0M $0M $0M 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018 2010 2012 2014 2016 2018

Source: PitchBook and SVB analysis. 21 SVB Public The Future of Mobility: New Platforms Skyrocket

The fastest unicorns ride scooters: Bird and Lime rolled to billion-dollar valuations as quickly as any in history. Startups are benefitting from advances in fundamental hardware, artificial intelligence, and communications ― not to mention plentiful capital from the likes of SoftBank’s Vision Fund.

Mobility Tech and Notable US Tech Decacorns: SoftBank $100M+ Global Investments in Mobility Age at Which Unicorn Status Achieved $40B Bird Mobility Tech Mobility Tech Other Other Lime $72B Valuation

Zoox $30B Airbnb $56B Valuation

Uber

The We Company $11B Valuation $20B Stripe

Pinterest $4B Valuation

USUS Unicorn Unicorn Average Average $10B Palantir Technologies Acquired for $1B

Lyft

SpaceX $0B $0.9B Valuation Age: 0 2 4 6 8 10 2016 2017 2018

Sources: PitchBook and SVB analysis. 22 SVB Public Tech Giants Spend Big but Now Face Scrutiny

The Big 5 US tech giants have gone unchecked despite their growing influence. Now, as they outspend the entire tech venture ecosystem in R&D dollars alone, they are facing increasing political scrutiny. Are their innovations a true benefit to society?

R&D Expenditure by Big 5 US Tech Companies vs. US Tech Venture Capital Invested $100B

V e r n e $80B t u

$60B

$40B

$20B

$0B 20102010 20112011 20122012 20132013 20142014 20152015 20162016 20172017 20182018

Source: PitchBook, S&P Capital IQ and SVB analysis. 23 SVB Public CFIUS Could Impact 20% of VC-Backed Acquisitions As geopolitical tensions rise, the Committee on Foreign Investment in the United States (CFIUS) is paying close attention. This has the potential to limit foreign acquirers who have been buying a growing share of US start ups. Most Acquisitions by Country: 2010– Strategic Acquisitions of US VC-Backed Tech Companies 2018 700 35% Domestic Acquirer Deal Deal Country International Acquirer Count Value % International 600 30% #1 United Kingdom 137 $15B

#2 500 25% Canada 116 $8B

#3 Japan 59 $22B 400 20% #4 Germany 58 $32B

#5 France 49 $8B 300 15% #6 China 43 $5B 200 10% #7 Israel 35 $1.3B

#8 India 31 $1.3B 100 5% #9 South Korea 28 $1.6B

0 0% #1 2010 2012 2014 2016 2018 0 Netherlands 27 $24B

Source: PitchBook and SVB analysis. 24 SVB Public SVB’s Outlook for Venture in 2019

Records were broken in 2018 as both venture-backed companies and their investors stockpiled private capital. Will this be the year we finally see exits for many of the high-profile startups built during this decade of prosperity?

2018 Themes 2019 Prediction

Deal counts at the early stages fell for another year from Without the robust pool of Seed-funded companies from their 2015 highs. Capital remained robust, however; the Early Stage years past, SVB anticipates another year of steady capital median Seed deal size reached $2M for the first time. in the early stages, despite declining deal counts.

Records were shattered at the later stages, with nearly 2018 could well be an anomaly for mega-round activity 200 venture deals of $100M+ in the US in 2018. Median Late Stage without renewed support from SoftBank or sovereign pre-money valuations for Series D+ crossed $300M. wealth funds. Expect valuations in aggregate to slide.

International startups took advantage of calm markets and If the marquee names in venture set a positive sentiment strong valuations to list in 2018. The US, however, still has Exits early, 2019 could represent the tipping point between $500B worth of unicorns on paper waiting to be realized. demand for private and public capital at the late stage.

US venture firms secured more than $50B in committed The velocity of US venture firms’ fundraising efforts capital, the highest total since the dot-com era. 43% went Fundraising foreshadows another big year for capital commitments. to funds of $1B+, like Sequoia’s $8B Global Growth III. 2019 should top $40B, even with a decrease from 2018.

Corporates participated in one-in-six US VC deals in 2018, If stock prices (and management teams) remain stable, with new CVC groups forming in old guard industries Corporates CVCs will remain heavily involved. Look for nearly 1,000 facing disruption late in the economic cycle. tech venture deals to have corporate participation.

Sources: PitchBook, S&P Capital IQ and SVB analysis. 25 SVB Public Disclaimers

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