June 2016

Strictly for Educational Purposes C lickDisclaimer to edit Master title style

This presentation is intended to be a general overview to be used strictly for educational purposes. This presentation may not contain all the details and information necessary for you to make investment decisions or evaluations. This presentation should be viewed in conjunction with the links and sources provided.

The information in this presentation are individual opinions and personal academic/industry experiences, all of which are subject to change. They do not necessarily reflect every detailed aspect of the economy, industry, the financial market or finance as an academic major.

Comments made are of a general nature and they are not designed to suit personal circumstances. Any representations or illustrations in this presentation may have been modified or simplified to suit the audience it is intended for.

Strictly for Educational Purposes 2 C lickContents to edit Master title style

Section Page

1 Executive Summary 5

2 Government Initiatives 10

3 Venture Capital Firms and Investment Case Studies 14

4 Conclusion 19

Strictly for Educational Purposes 3 C lickPublications to edit Master Team title style

Publications Directors • Jesse Mo • Robin Nandy

Subcommittee Contributors • Aditya Katyar • Alex Chye • Alex Chan • Anita Chao • Henry Chen • Kevin Lu

Strictly for Educational Purposes 4 Section 1 Executive Summary C lickWhat to editis Venture Master Capital?title style

Overview Definition Involved Parties

• Venture capital is money provided by an outside investor to • Limited Partners: finance a company that is new and growing – Investors who contribute money to a VC fund in • Typically seeks new, disruptive businesses with a perceived exchange for ownership shares in the fund long-term growth potential that will result in a large payout – Liability is limited to the amount of capital they for investors contribute • Venture capital generally follow a series of financing rounds – Includes high net-worth individuals and pension funds which include: • General Partners: – Seeding round: start up capital is provided by an – Managers of the VC fund to finance a business idea – Liability is unlimited – Angel round: the investor purchases an equity stake • Entrepreneurs: – Series rounds: financing provided by VCs in exchange for an equity stake – Individuals who have business ideas or who are currently developing a business • Venture capital realises returns from investments via an exit method: – They seek VC financing in exchange for an equity stake in their business – Initial Public Offerings (IPOs) • Underwriters: – Trade Sales – Become involved in an IPO exit of venture capital – Management Buyouts (MBOs) investments – Liquidation – Usually an investment bank

Sources: Australian and Venture Capital Association Limited, Australian Government Strictly for Educational Purposes 6 C lickWhat to editis Venture Master Capital?title style

Industry Ecosystem

Investors Government Super and Pension Funds Tax concessions for Early Stage Venture Start-Ups Capital Limited Provides grants, Partnerships assistance, (ESVCLP) incubator and Co-Investment accelerator programs High Net Worth Funds Individuals

Venture Capital

Invest to Firms/Funds diversify Sovereign Wealth Funds portfolio with Provides capital expectations for business of high operations and growth value add via expertise

Provides Equity stake at return on initial investment investment and return at exit

Source: Australian Government, Australian Private Equity and Venture Capital Association Limited Strictly for Educational Purposes 7 C lickVenture to edit Capital Master Landscape title style

Financing in Australia Overview of 2015 Australian VC Funds Raised by Fiscal Year

$mm • VC funds raised from $126m to $368m in 2015; a 400 368 compounded annual growth of 193%. 357 352 350 • This was driven by the allowance of superannuation 300 investment in Australia. 240 250 • The seven VC funds raising new capital included Brandon 175 200 158 Capital Partners, Medical Research Commercialisation Fund 143 152 150 126 3 (MRCF3), AirTree Ventures’ and the OneVentures 100 Innovation and Growth Fund. 100 • Majority of funds raised to focus on seed and early-stage 50 ventures 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Number of Funds Raising by Fiscal Year Investment Focus of Funds Raising (FY15)

14 13 12 23% 10 9 Seed/Early Stage VC 8 7 6 6 5 4 4 4 Balanced/Later 4 3 3 Stage VC 2 77% 0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Source: Australian Private Equity and Venture Capital Association Limited Strictly for Educational Purposes 8 C lickVenture to edit Capital Master Landscape title style

Investments in Australia Overview Distribution of Investments by Sector (FY15)

• VC investments in Australia have fluctuated heavily over the Industrial 10% years, peaking at $535mm in FY14 5% • Unlike the US, investee companies in Australia are more Tech, Media, Telecom 34% focused on consumer and industrial sectors rather than 8% technology and media Consumer • Investee companies tend to be mostly in the start-up and late stage phase, unlike the US which tends to be more Financial Services focused on seed and early-stage venture investments Biotech/Sciences 34% 9% Other

Total Investments Made by Fiscal Year Distribution of Investments by Stage (FY15)

$mm 3% 9% 600 535 500 21% Seed 400 Start-up 280 300 229 224 212 191 Other early stage 200 137 151 153 144 Late stage VC 9% 100 Other VC 0 58% FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Source: Australian Private Equity and Venture Capital Association Limited Strictly for Educational Purposes 9 Section 2 Government Initiatives C lickAustralian to edit Master Federal title Government style Initiatives

Timeline 2001: 1984: $2.9b innovation Management and Investment 2011: action plan to fund Companies Program, first Board of Taxation 2015: education and R&D government initiative 1997: initiates review of New PM announces launched to foster an $130m Innovation Venture Capital Act $1.1b National Australian VC Industry Investment Fund Innovation and Science established Agenda

1992: 1999: 2002: 2012: 2016: Pooled $30mm Venture Capital Department of Tax Laws Amendment Development Commercialising Act introduced to Industry, Innovation (Tax Incentives Bill) Funds Act 1992 Emerging launch Venture and Science initiates passed was passed Technologies Capital Limited second review of the Program Partnerships Venture Capital Act established Program

Sources: University of Wollongong, Pooled Development Funds Act 1992, Venture Capital Act 2002, Tax Laws Amendment Strictly for Educational (Tax Incentives for Innovation) Bill 2016 Purposes 11 C lickAustralian to edit Master Government title style Initiatives

Overview of Key Programs Management and Investment Companies Innovation Investment Fund

• Venture Capital firms were designated as Management and • Started in 1997 under the Howard government Investment Companies under Management and Investment • Terminated in May 2014 as part of new, emergency Companies Act 1983 budgetary measures • Superannuation and pension funds which invested in MICs • Details: could claim a 100% tax deduction – Australian government would match private sector • Requirements: funding at a ratio of 1:1 for start-up businesses – MICs hold shares in new businesses and start-ups for – Public funding would not exceed more than at least 4 years $100mm – Funds invest no more than 20% of their capital into – Qualitative factors to be considered include the VC’s any one company experience and investment strategy

Venture Capital Limited Partnership Program Early Stage VC Limited Partnership Program

• Requirements to become a VCLP • Requirements to become a ESVCLP – Incorporated limited partnership – Incorporated limited partnership – Pay tax in Australia – Pay tax in Australia – Have at least $10mm committed capital – Have between $10mm-100mm committed capital • Benefits of becoming a VCLP • Benefits of becoming a VCLP – Flow-through taxation – Flow-through taxation – Foreign partners exempt from capital gains tax – All partners exempt from capital gains tax • VCLPs must invest in a predominately Australia business • VCLPs must invest in a predominately Australia business with less than $250mm in assets for more than one year with less than $50mm in assets for more than one year

Sources: University of Wollongong, Pooled Development Funds Act 1992, Venture Capital Act 2002, Tax Laws Amendment Strictly for Educational (Tax Incentives for Innovation) Bill 2016, Australian Financial Review Purposes 12 C lickAustralian to edit Master Government title style Initiatives

Impact of Key Programs Past Government Schemes Government Funded Success Companies

• Management and Investment Companies 1984: • ResMed – Was largely unsuccessful at fostering innovation – Healthcare company which manufactures devices to – Failure attributed to more incentive to invest in later- treat breathing and sleep-related disorders stage businesses rather than early-stage ventures – Listed on the ASX in 1999 resulting in lack of supply of funds • Gekko Systems • Innovation Investment Fund 1997: – Company which develops mining technology – IIFs increased supply of funds for risky early stage products and equipment high-tech start-ups – Has operations in 44 countries worldwide – However, relative to private equity, the supply of • venture capital in Australia is still negligible – Enterprise software development company – Listed on the NASDQ in 2015 with a record Venture Capital and Private Equity in Australia valuation of $US4.4bn

10000

8000

6000 Venture Capital 4000 Private Equity

2000 Amount raised ($m)

0

Sources: Australian Private Equity and Venture Capital Association Limited, Australian Government, University of Wollongong, Strictly for Educational Company Websites Purposes 13 Section 3 Venture Capital Firms and Investment Case Studies C lickAustralian to edit Master Venture title Capital style Firm: AirTree Ventures Overview

History Current Investments

• AirTree Ventures was founded by former Microsoft • Current notable investments: executive Daniel Petre, and former Expedia MD Craig Blair – 90 Seconds, a cloud video production platform, in in June 2014. allowing brands to plan and shoot videos anywhere in • The firm raised $56.4 million from 17 investors in 2014, the world. including clients from Westpac, UBS, Macquarie Bank as well – Prospa, an online small business lender, that approves as several high net worth individuals. small unsecured loans within 24 hours. • AirTree focuses on seed and early-stage venture – Canva, an online graphic design platform catering for investments with Australian entrepreneurs. both designers and non-designers alike. – Brosa, an online design furniture store that connects master craftsmen to Australian homes

Expertise

• AirTree seeks opportunities with start-ups that aim to disrupt financial services and real-estate marketplaces, favouring companies that are generating revenue but not necessarily cash flow positive. • The firm has successful investments in – Online marketplaces – Software-as-a-Service (SaaS) businesses – Next generation finance – Media and marketing platforms

Sources: AirTree Ventures, Crunchbase Strictly for Educational Purposes 15 C lickAustralian to edit Master Case Study: title style eBay

AirTree Venture’s Investment Company Overview Investment Details

Description Ebay is a global e-commerce website which Fund Name Ecorp provides an online auction system and marketplace that connects buyers and sellers Year of 1997 of new and used goods. Investment Business Model Ebay’s revenue is generated via a system of Series Round N/A fees for listing products, services and a fee for successful sales. Amount N/A Founder Pierre Omidyar Invested

Year Founded 1995 Equity Stake N/A

Date of Listing September 21, 1998 Year of Exit 2002

Exit Method Trade Sale to eBay Global IPO Price $1.87 Exit Price N/A Current Price $24.12 (26 May 2016) Return N/A Ticker NASDAQ: EBAY

Annual $8.59bn (2015) Revenues (USD) Transaction 2 billion (per day) Volume

Source: Crunchbase, eBay annual reports, AirTree Ventures, NASDAQ Strictly for Educational Purposes 16 C lickInternational to edit Master Venture title style Capital Firm: Accel Partners

Overview History Notable Past and Current Investments

• Accel Partners was founded in 1983 by former executives of Adler & Company, Jim Swartz and Arthur Patterson. • Since its inception, Accel has raised 19 funds amounting to a total of $19.56 billion from private investors. • Accel’s investment scope covers seed, early-stage ventures, and private equity with a particular focus on innovative technologies across the U.S., Europe and Asia.

Timeline of Key Funds Raised

March 2016 December 2008 June 2012 June 2000 Early Stage Fund XIII: Accel Growth Fund: Accel Accel Fund March 2015 $500mm April 2016 $480mm Europe VIII: Accel IV: Accel Growth Fund IV: Accel London V: Accel London III: Fund: $1.6bn $305mm $1.5bn $305mm $525mm $500mm

Source: Accel Partners, Crunchbase Strictly for Educational Purposes 17 C lickInternational to edit Master Case title Study style:

Accel Partner’s Investment Company Overview Investment Details

Description Facebook is a social networking platform Fund Name Accel IX Strategic Partners, LP which connects users to family, friends, acquaintances and new connections. Year of 2005 Investment Business Model Facebook’s revenue is generated via Series Round Round A sponsored advertisements and virtual gaming fees. Amount $12.7mm Founder Mark Zuckerberg Invested

Year Founded 2004 Initial Equity 15% Stake Date of Listing September 18, 2012 Year of Exit No Exit Yet

IPO Price $38 Future Exit Public Offering of Shares Method Current Price $119.47 (26 May 2016) Current Stake 10% Ticker NASDAQ: FB Estimated $344bn Annual $17.928bn (2015) Current Value Revenues (USD) Current Active 1.65 billion Users

Source: Crunchbase, Facebook annual reports, Accel Partners, NASDAQ Strictly for Educational Purposes 18 Section 4 Conclusion C lickConclusion to edit Master title style

Summary Australian Venture Capital Industry Role of Government

• The Australian venture capital industry remains small • The Australian Government has historically played and will relative to the private equity industry, despite increasing continue to play a significant role in the venture capital attempts to stimulate activity in this sector industry • Australian VC culture tends to be more risk-averse than • Their involvement has had the aim of encouraging other countries, resulting in less investments in seed and innovation, developing new businesses and ultimately early-stage ventures benefiting the economy via increased specialisation, • Aggregate fundraising in the industry has started to increase, workforce skills and employment driven by more superannuation allocation to VC funds • Numerous initiatives undertaken include: • At an investment level, Australian companies seeking VC – Management and Investment Companies funding tend to be more consumer and industrial oriented – Innovation Investment Fund due to the small Australian technology sector – Venture Capital Limited Partnership Program – Early Stage VC Limited Partnership Program

Source: Australian Private Equity and Venture Capital Association Limited, Australian Government, The Payroll Blog Strictly for Educational Purposes 20 C lickFuture to edit of VentureMaster title Capital style in Australia

Overview Consensus View Potential for Growth

• General consensus amongst industry commentators is that • Nevertheless, increasing attention is being paid to Australian the Australian venture capital market is unlikely to be as start-ups in a changing economy: successful as its American counterpart – Incubator programs have been implemented to • Reasons: develop start-up skills (e.g. ATP Innovations, a leading – The technology sector (mainly comprised of health technology business incubator, has partnered with and biotechnology, communications and information several universities to help educate students in technology) contributes to a significantly smaller innovation) proportion of total venture capital in Australia than – The government has provided incentives for in the U.S entrepreneurs through tax, grants and education – Lack of start-up skills and funding for start-ups programs in an aim to stimulate economic activity, available due to a comparatively more risk averse especially in niche markets and sectors investment culture – Clusters (such as Silicon Valley) are unlikely to be formed given Australia’s significantly smaller geographical dispersion of economic activity

Incubators and government initiatives remain the main source of growth for A Silicon Valley-style hub will the Australian venture capital industry. be very difficult to develop in Australia.

Sources: Australian Financial Review, Australian Government Strictly for Educational Purposes 21