Preqin Special Report: Venture Capital

Content Includes: Preqin Special Report: Venture Capital

Performance November 2014

Have venture capital returns turned a corner? Venture capital outperforms private equity according to the latest one-year horizon IRR data.

Investors

Exclusive survey results reveal LP sentiment towards venture capital investment.

Fundraising

Venture capital fundraising on the rise: latest statistics.

Deals

Venture capital deals and exits see record highs in 2014 YTD.

Plus Special Guest Contributors: Ariadne Capital

alternative assets. intelligent data. Download the data pack: Preqin Special Report: Venture Capital www.preqin.com/VC14

Contents

CEO’s Foreword - Mark O’Hare p3.

The Turning Point for Venture Capital? p4. How Corporates Can Build Their Digital P&L By Partnering With Digital “Enablers” - Ariadne Capital p7. Venture Capital Investor Survey Results p8. Venture Capital Investors p9. Venture Capital Fundraising p10. Venture Capital Deals p11.

Key Facts

Venture Capital Fundraising by Primary Geographic Focus, 2014 YTD

North America Europe $22.2bn Asia $9.5bn$

Diversified Multi-Regional $1.3bn$1 3b Rest of World

One-year rolling horizon IRR to March 2014 56% of venture capital investors surveyed data shows venture capital outperforming intend to make a commitment to a venture all private equity. capital fund before the end of 2015.

Aggregate quarterly venture capital deal 59% (3,214) of LPs are interested in venture value reached an all-time high in Q2 2014, capital investments. at $23bn.

CEO’s Foreword

Venture capital is a core part of the global private capital universe, both in terms of its longevity and also the sheer scale, reach and impact of its activities. Out of a total of 8,256 PE/VC fi rms profi led on Preqin’s databases, no fewer than 4,754 are venture capital fi rms, 57% of the total; nearly 4,000 venture funds have closed over the past decade, or are currently on the road fundraising; and with over 50,000 VC deals listed on Preqin’s databases over the past seven years, the impact of venture capital funds and fi rms in funding start-up and growing businesses is profound. The industry has also become increasingly global, expanding outside its West Coast US roots to develop clusters of venture capital fi rms and activity across the US and internationally.

The Achilles Heel for venture capital funds since the turn of the millennium has, of course, been performance, lagging well behind other private equity strategies. Despite this, many LPs have “stuck with the program” – with over 3,000 of the 5,500 active private equity LPs listed on Preqin’s databases either having invested in venture capital funds, or having an interest in doing so. Put simply, the argument for venture capital over this period has been: sure, average returns have been disappointing, but the performance of the best funds has been excellent, so if you can identify and get into those funds, you can do well; plus, venture capital gives the investor access to a segment of the economy that you cannot invest in through any other route, so brings vital diversifi cation/effi cient frontier benefi ts. These arguments are valid, but can start to wear thin after so many years in which the asset class as a whole has under-performed.

Is this now changing? Has venture turned the corner?

Starting in 2011, there has been a marked improvement in venture capital fund returns, so much so that the net returns they have delivered to LPs are now on a par with the ‘All PE’ benchmark over three years, and the best-performing strategy over one year. Whether this improvement persists does, of course, remain to be seen – but the arguments for venture capital are starting to resonate ever more strongly with LPs: diversiﬁ cation + average returns looking attractive + opportunity for signiﬁ cant outperformance through good fund selection. As a result, LP attitudes are starting to turn more positive towards venture capital (see page 6), boding well for the 581 venture capital funds currently on the road looking for capital.

The turnaround in venture capital fortunes is both welcome and highly signiﬁ cant for the industry, and especially for LPs looking for opportunities to deploy capital. Preqin will be following developments over the coming months through all the key metrics showing the state of the venture capital industry – capital raising, deals, exits, fund performance and LP interest.

Thank you,

Mark O’Hare

Preqin’s Venture Capital Data: A Vital Tool

Preqin’s Private Equity Online contains detailed information on all aspects of the private equity and venture capital industry.

Access in-depth data for over 5,900 venture capital funds and over 4,700 venture capital fund managers, as well as detailed proﬁ les for more than 3,200 investors that have a preference for investing in venture capital.

Plus, examine over 72,000 venture capital deals and view individual performance data for over 1,500 venture capital funds.

For more information, please visit:

www.preqin.com/venture

The Turning Point for Venture Capital?

Although much maligned for sub-par performance since the dot-com crash, venture capital returns for more recent funds have picked up signiﬁ cantly – one-year horizon returns are among the best in the entire private equity industry. Preqin’s latest special report examines the drivers of this recent success, and uncovers the impact of improved performance on LP attitudes towards the asset class and the prospects for future fundraising.

A Chequered Past show venture capital horizon IRRs improving from 12.7% for the three-year period to March 2014 to 27.0% for the one-year Following a rapid reversal of fortunes at the turn of the period to March 2014, outperforming all other strategies. millennium, the venture capital industry has experienced largely lacklustre returns which have led to tough fundraising conditions Post Dot-Com Performance: 2001 – 2007 for all but a select group of top-tier managers. However, more recently there have been some encouraging signs across the To provide an insight into how venture capital performance has industry, with market conditions becoming more favourable, progressed over time, we can assess horizon IRR fi gures at returns improving and fundraising picking up as investors take year/quarter ends (Fig. 2). In the one-year period to December note. Is this the turning point for venture capital? 2000, venture capital was still riding high on the dot-com boom with a horizon IRR of 38.1%. Following the subsequent bursting Why Invest in Venture Capital? of the internet bubble at the turn of the millennium, the one-year horizon IRR of venture capital plummeted to -34.3%, and did The venture capital asset class has long featured in many not recover into the black until 2004. Performance peaked again investors’ portfolios for a variety of reasons, including portfolio in 2007 before tumbling once more into the negative, as with diversifi cation, fulfi lling mandate objectives, the chance to all other fund types bar mezzanine, this time as a result of the capitalize on the emergence of promising start-up companies and global fi nancial crisis. to boost local economies. In certain jurisdictions, the existence of a favourable legislative environment and policies is also a It is important to note that some funds, in the face of wider draw. In a survey of 100 venture capital investors conducted industry underperformance, still generated exceptional returns by Preqin in October 2014, we found that 51% of respondents and multiples. Examples include Union Square Ventures commit to venture capital funds primarily for outsized returns. (vintage 2004, net IRR 70.6%); Avalon Ventures VIII (2007, 58.1%); Emergence Capital Partners II (2007, 52.9%); Grotech So what kind of returns have venture capital commitments Partners VII (2007, 46.5%) and CHAMP Ventures Investments produced? Fig. 1 shows the private equity horizon IRRs of the Trust No. 5 (2002, 42.7%). main strategies over one-, three-, fi ve- and 10-year periods. The horizon IRRs are calculated using the fund’s net asset value as More Recent Performance: 2008 – 2011 a negative outfl ow at the beginning of the period, with any cash paid or received during the period and the fund’s residual value Fig. 3 uses top quartile boundary net IRR data taken from Preqin’s as a positive infl ow at the end of the period. The pattern for Performance Analyst module, and outlines the improvement in venture capital returns shows clear underperformance relative venture capital returns for more recent vintage funds following to other strategies over 10 years, with an improving picture more the dot-com slump. Fig. 3 illustrates the reversal of fortune for recently. Most notably, the last three- and one-year periods venture capital returns. In stark contrast to the venture capital

Fig. 1: Private Equity Horizon IRRs as at 31 March 2014 Fig. 2: One-Year Rolling Horizon IRRs by Fund Type

30% 80%

25% 60% All Private Equity All 40% 20% Buyout Buyout

Venture Venture 15% 20% Fund of Funds Fund of Funds 0% Horizon IRR (%) 10% Mezzanine Mezzanine

Distressed -20% Real Estate 5% Private Equity Horizon IRR (%) One-Year

-40% 0% 1 Year to 3 Years to 5 Years to 10 Years to 1 Year to Mar 2014 Mar 2014 Mar 2014 Mar 2014 Mar 2014 -60% 1 Year to Dec 2000 1 Year to Dec 2001 1 Year to Dec 2002 1 Year to Dec 2003 1 Year to Dec 2004 1 Year to Dec 2005 1 Year to Dec 2006 1 Year to Dec 2007 1 Year to Dec 2008 1 Year to Dec 2009 1 Year to Dec 2010 1 Year to Dec 2011 1 Year to Dec 2012 1 Year to Dec 2013

Source: Preqin Performance Analyst Source: Preqin Performance Analyst

funds of vintage 2002, which have a top quartile margin that lags Fig. 3: Venture Capital - Median Net IRRs and Quartile far behind all private equity, 2011 vintage venture capital funds Boundaries by Vintage Year (excluding early stage) surpassed the top quartile boundary net IRR of all private equity by 220 basis points. 30%

25% Preqin’s data further demonstrates that this improvement is not just reserved for top performing funds. As shown in Fig. 3, 20% Top Quartile IRR Boundary bottom quartile venture capital funds have also seen a marked 15% improvement, recently moving into the black for the ﬁ rst time. Median Net This was unseen even at the height of the dot-com boom and 10% IRR serves as further evidence of the turnaround seen in industry performance. Vintage 2010 venture capital funds have the 5% Bottom Quartile IRR highest top quartile IRR boundary (23.7%), while the median 0% Boundary

net IRR for vintage 2008 - 2010 vehicles has risen to between Net IRR since Inception

10% and 15%. Given the precarious economic conditions of the -5% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 time, the metrics for vintage 2008 venture capital funds are very -10% encouraging. -15% A Surge of Exits Source: Preqin Performance Analyst The improvement in performance reﬂ ects the high portfolio looks set to eclipse the total raised for a number of years (Fig. valuations and the favourable exit opportunities that are 6). The split between types of venture funds shows that 50% evidently being found by venture capital fund managers. It is also of funds closed in 2007 to 2014 YTD invest generally across testament to the ability of these GPs to strategize and source all rounds, 11% are focused on expansion/late stage venture companies with good potential to generate outsized returns and capital and the remaining 39% are specialized in early stage, exceed public market equivalents. encompassing seed and start up investments.

Fig. 5 shows the annual statistics for venture capital exits from Analysis of funds closed split by primary geographic fund focus is 2007 to 2014. The rise in both number of exits and aggregate provided in Fig. 17 (page 10). While North America consistently exit value is clear, with particularly strong momentum for exit continues to account for the largest proportion of total capital value in the periods 2008 to 2010, and 2013 to Q3 2014. A raised by venture capital funds, the share represented by Asia- breakdown by exit type shows that trade sales consistently focused vehicles has shot up in the past year. Of all venture comprise the majority of all venture capital exits. There has also capital funds closed in 2013, 11% were primarily targeting been a steady rise in initial public offerings with year-on-year Asian investments, but in 2014 YTD, this proportion more than increases from 127 in 2011 to 161 in the fi rst three quarters of doubled to 25%, thus indicating that Asia has overtaken Europe 2014, refl ecting the strength of public equity markets of late. to become the second most popular investment destination for venture capital. Where is the Money Going? These fundraising statistics should be considered alongside The record distributions that investors are currently seeing, which venture capital deal activity. Fig. 7, which uses data from Preqin described in the September 2014 issue of Private Equity Preqin’s Venture Deals Analyst, shows a signifi cant overall Spotlight, should bode well for future venture capital fundraising. rise in annual deal numbers and aggregate value since 2009. Preqin’s latest fundraising fi gures reveal that the total amount of Signifi cantly, aggregate deal value for the fi rst three quarters of capital secured by venture capital vehicles in 2014 YTD ($38bn) 2014 has already reached $60bn, eclipsing full year total values has already outstripped the total secured in 2013 ($31bn), and since 2007. The internet, software, healthcare, telecoms and

Fig. 5: Global Number and Aggregate Value of Venture Fig. 4: Top Quartile Boundary Net IRRs by Fund Type and Capital Exits by Type and Aggregate Exit Value, 2007 - Q3 Vintage 2014

1,000 120

35% Aggregate Exit Value ($bn) 900 100 30% 800 700 All Private Equity 80 25% 600 500 60 20% 400 Venture Capital No. of Exits 40 Excluding Early 300 15% Stage 200 20 10% Early Stage 100 0 0 Net IRR since Inception 5% 2007 2008 2009 2010 2011 2012 2013 2014 Q1-Q3 0% IPO Write Off Sale to GP Trade Sale 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Aggregate Exit Value ($bn) Vintage Year Source: Preqin Performance Analyst Source: Preqin Venture Deals Analyst

Fig. 6: Annual Venture Capital Fundraising, 2000 - 2014 YTD Fig. 7: Number and Aggregate Value of Venture Capital (As at 14 October 2014) Deals, 2007 - 2014 YTD (As at 14 October 2014)

500 9,000 70 463 450 8,000 Aggregate Deal Value ($bn) 60 400 361367 7,000 350 341 No. of Funds 50 301307 298 Closed 6,000 300 278 274 260 244 256 249 5,000 40 250 220 196 4,000 200 Aggregate 30 No. of Deals 150 Capital 3,000 Raised ($bn) 20 100 77 2,000 43 44 48 52 42 50 28 37 27 38 31 38 10 15 13 26 1,000 0 0 0 2007 2008 2009 2010 2011 2012 2013 Q1-Q3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2014 YTD No. of Deals Aggregate Deal Value ($bn) Year of Final Close Source: Preqin Funds in Market Source: Preqin Venture Deals Analyst

media industries are the sectors which have seen the highest even negative IRRs at the other. The high standard deviation level of investment in 2014 YTD. As expected, North America of venture capital fund performance, particularly within early comprises the biggest proportion of global venture deal value by stage-focused vehicles, demonstrates the mixed performance a signifi cant margin; however, other markets such as Israel and the industry has seen over time and reinforces the importance India are also showing positive signs of growth. See page 11 for of good fund selection in venture capital. further analysis. Encouragingly for those seeking capital or planning to launch a Effect on LP Attitudes new vehicle, the results from previous Investor Outlook surveys show a small but sure growth in appetite for venture capital As venture capital performance improves and translates into commitments. When asked the fund types that they are seeking higher returns for LPs, investor confi dence in the venture capital to invest in over the next 12 months, 18% of LPs surveyed in industry has started to return. October 2014 saw the highest H2 2013 stated venture capital, 25% in H1 2014 and 29% in number of funds in market in the period 2007 - 2014 YTD (Fig. H2 2014. In terms of specifi c favoured areas for investment, the 16, page 10), in addition to the fact that the proportion of venture US and information technology emerged as the front runners. capital funds failing to meet their targets is currently at a record Pages 8 and 9 of this report provide further analysis of the low of 30% (Fig. 18, page 10). survey results, including intended timelines for next venture capital commitments. Although sentiment has been improving, investor confi dence in the asset class is still mixed and returns will need to prove to be A Brighter Future? more consistent before attitudes change fully. Preqin’s October 2014 venture capital investor survey still found that over half A recovery is well underway for the venture capital industry of investors (53%) named performance as a key issue for the and investors are exhibiting signs of increased confi dence, as industry in 2014 and the year ahead. Nonetheless, anecdotal refl ected in the rising amounts of capital secured by venture evidence demonstrates that investors’ attitudes to venture capital funds, and deal and exit activity is growing. However, capital performance have improved in recent times, with one US- conditions are still tough, and venture capital fund managers based investor specifying: “The past has been disappointing but seeking capital commitments need to continue to demonstrate our current active portfolio is mostly living up to expectations.” to prospective investors that they have a strong strategy and In fact, for 62% of investors surveyed, venture capital fund deal pipeline, and a good alignment of interests. Fig. 11 (page investments in the past 12 months have met expectations, while 8) provides a breakdown of factors that investors surveyed 16% had their expectations exceeded, compared to 22% that consider the most important when looking for a venture capital felt that their investments in the sector had fallen short. fund manager.

Comparing these statistics to those revealed in Preqin’s latest Overall, the global venture capital landscape is currently seeing Investor Outlook survey, a biannual study of LPs across all favourable conditions that are pointing to a healthy fundraising private equity, shows that a larger proportion of venture capital market and a strong deals environment. However, fund managers investors felt their fund investments exceeded expectations still face challenges in securing capital as investors are wary of (16% vs. 12%) and a larger proportion felt their commitments the asset class, given the largely disappointing returns in the fell short (22% vs. 14%) compared to all other private equity fund past 10 years, and will need to see more consistent performance types. This conveys the more extreme polarities that exist in the over time. The recent uptick in venture capital performance venture capital industry, hinting at those ‘home run’ investments conﬁ rms the market is at a real turning point. Should these that can generate outsized returns at one end of the spectrum, trends continue, more investors will take notice and we could and those ‘strike outs’ that perform poorly with very small or see a rejuvenated market.

6 © 2014 Preqin Ltd. / www.preqin.com Download the data pack: www.preqin.com/VC14 Preqin Special Report: Venture Capital How Corporates Can Build Their Digital P&L By Partnering With Digital “Enablers” - Julie Meyer, CEO & Chairman of Ariadne Capital & Managing Partner of Ariadne Fund

The ‘story’ of European venture capital is really a story of how high- In key sectors like those occupied by Amazon, Apple, Facebook growth businesses have been built over the past 25 years. It is and Google, there simply won’t be a European equivalent. always instructive to look at the outcomes of an industry and its Notwithstanding the rise of Rocket Internet, whose operational drivers as well as the key players to anticipate where it may end abilities are exceptional, the underlying thinking of the business up. In short, what’s the end game for the European venture capital model is very 2007. Value is accruing to the mostly US-based world? platform companies because they are providing the dominant ‘highway’ for US and European digital entrepreneurs to go to Most European venture capital partners’ play book is relatively thin. market. So European start-ups go to Palo Alto once again for their They are essentially looking to identify the best entrepreneurs, and distribution, scale, audience and reach and do a deal with an App fi gure out how to sell them to a US technology platform fi rm as Store to put their car on the highway. soon as possible. Or they sell their positions early or strangle the companies they back. So, does it matter if we just make the toppings of the pizza, and not the pizzas or ovens themselves? Actually it does! You have Legend has it that the VCs that backed Racal Telecom (which to look hard and consider deeply the ‘successes’ of the European became Vodafone) sold their position due to the end of their fund’s venture capital scene. Elaia Partners backed Criteo, a leader in life – perhaps understandable, but short-sighted nonetheless. So, predictive advertising, which listed on Nasdaq, now with a market as a European technology entrepreneur, you hear around you the capitalization of more than $2bn. I’ll bet it gets taken out by call to Palo Alto for your funding – ‘it’ll be so much easier out there’, Google within a year. Autonomy, which wasn’t backed by venture but if you don’t go to Palo Alto at the beginning you go to Palo Alto capitalists anyway, had the capacity to be a platform company, at the end. and we all know what happened there. Despite being able to offer their shareholders’ liquidity, Autonomy’s management did a deal And a large sucking sound of value across the Atlantic westward with HP which is mired in controversy, and a once great player has doesn’t seem to bother too much the general partners of European disappeared in a mist. venture capital funds. They pocket their cash, forget to incentivize the associates who did all the work on the portfolio anyway, and Ebuzzing, a $100mn revenue video advertising company, has move to Switzerland. acquired nine businesses, and might go public in 2015. Led by Pierre Chappaz, the entrepreneur who built Kelkoo and sold it to Should it? It is critical to understand how companies are being built Yahoo, he won’t stop for small change. DN Capital has raised a right now and how technology is a layer driving growth across all new $200mn venture fund recently, and had seven exits in their industries to make sense of the fork in the road. last fund. They have emerged as a signifi cant homegrown venture capital fund in Europe, but their companies are not creating The platform companies are cleaning up. The Gang of Four ecosystems or becoming platforms, they are being sold. Again, it is (Amazon, Apple, Facebook and Google) are the biggest winners great for the limited partners, but not for the capacity for European here. They organise the economics for their sectors, and compete economies and societies to disproportionately reap the benefi ts ruthlessly with each other. Crucially, they use the infrastructure and profi ts of the intellectual capital of its talent. of others without really paying a toll, or negotiating terrifi c rates. Indeed, this is what the entire net neutrality debate is about. The future of European venture capital lies in integrating established corporates with the digital “enablers”. This will help the corporates So, if you are an infrastructure fi rm, a bank, a telecommunications build their digital P&Ls and would give start-ups a “highway” to company, a hospital, a school – with assets that touch ground, with accelerate their growth. regulation and taxes, and with legacy issues, you must migrate upwards and open up to becoming a platform. This is not easy. You Ariadne Capital must rethink how you engage with your industry and you must be concerned about the growth and profi ts of your industry, not just Ariadne Capital is an investment fi rm founded in 2000 your business. You will have smaller margins, with more players in by Julie Meyer which has a portfolio of digital technology your business model, but your revenues will grow, and the growth investments in retail fi nancial services and media. It is backed will move from linear to exponential. You will by defi nition be a by leading entrepreneurs and pioneered the ‘Entrepreneurs company leveraging cloud technology with application platform Backing Entrepreneurs’ model of fi nancing entrepreneurship interfaces (APIs) with strong data analytics capabilities. syndicating more than £350mn of investments over the past 14 years. What does this have to do with the European venture capital industry? We haven’t created many platform companies in Europe. www.ariadnecapital.com

Venture Capital Investor Survey Results

In October 2014, Preqin interviewed 100 investors that have a current interest in investing in, or have previously committed to, the venture capital asset class.

Fig. 7: Regions Investors Are Targeting for Venture Capital Investments of respondents are looking to make 56% a commitment to a venture capital fund by the end of 2015.

Europe US 45% 62% Asia 28% of venture capital investors view Africa 2% information technology as having Latin America 75% the most attractive opportunities at 7% present.

Source: Preqin Venture Capital Investor Survey, October 2014

Fig. 8: Key Issues the Venture Capital Industry Faces in Fig. 9: Timeframe for Investors’ Next Intended 2014/2015 Commitment to a Venture Capital Fund

Performance 53%

Economic Environment 42% 24% Liquidity 23% 2014 36% H1 2015 Fees 18%

H2 2015 Regulation 17%

Longer Term Volatility 16%

Not Sure Transparency 15% 24% 9% Consolidation 6% 8% 0% 10% 20% 30% 40% 50% 60% Proportion of Respondents Source: Preqin Venture Capital Investor Survey, October 2014 Source: Preqin Venture Capital Investor Survey, October 2014

Fig. 10: Industry Sectors Venture Capital Investors View as Fig. 11: Factors Investors Consider to Be the Most Important Having the Most Attractive Opportunities at Present When Looking for a Venture Capital Fund Manager

Information Technology 75% Healthcare 64% 5% Telecoms, Media & Comms 47% 7% Team Business Services 40% Clean Technology 37% Past Performance Energy & Utilities 33% 41% 20% Strategy Consumer Discretionary 20% Infrastructure 18% Length of Track Food & Agriculture 18% Record Industrials 10% Alignment of Real Estate 9% Interest Materials 8% 27% 0% 10% 20% 30% 40% 50% 60% 70% 80% Proportion of Respondents Source: Preqin Venture Capital Investor Survey, October 2014 Source: Preqin Venture Capital Investor Survey, October 2014 8 © 2014 Preqin Ltd. / www.preqin.com Download the data pack: www.preqin.com/VC14 Preqin Special Report: Venture Capital

Venture Capital Investors

Fig. 12: Investor Attitudes towards Different Fund Types at Present North America accounts for the

majority (56%) of venture capital Small to Mid-Market Buyout 46% 59% investors, followed by Europe (25%) Large to Mega Buyout 24% 31% and Asia (11%). Secondaries 22% 31% Venture Capital 16% 29% Distressed Private Equity 16% 24% Fund of Funds 11% 20% Two out of every three institutional Growth 7% 12% investors in venture capital have Mezzanine 6% 15% Cleantech 2%5% assets under management of less 12% than $5bn. Other 13% 0% 10% 20% 30% 40% 50% 60% Proportion of Respondents Fund Types Investors Are Seeking to Invest in over the Next 12 Months View in-depth proﬁ les for all 3,214 institutional investors with an appetite for venture capital funds on Preqin’s Investor Fund Types Investors View as Presenting the Best Opportunities Intelligence, including past fund commitments, geographic Source: Preqin Investor Interviews, June 2014 preferences, future investment plans and much more. For more information, please visit: www.preqin.com/ii

Fig. 13: Breakdown of Venture Capital Investors by Assets Fig. 14: Breakdown of Investors with a Preference for under Management Venture Capital Funds, by Investor Type

16% 14% 14% 12% 11% 9% 12% 19% 10% 9% 9% Less than $250mn 8% 7% 6% 6% 6% 6% 6% 15% 6% $250-999mn 4% 4% 4% $1-4.9bn 2%

Proportion of Investors 0% $5-9.9bn 9%

21% $10-49.9bn Other

More than $50bn Foundation Banks Fund Family Offices Asset Manager Endowment Plan Wealth Manager

27% Funds Manager Corporate Investor Banks & Investment Public Pension Fund Insurance Company Government Agency Private Equity Fund of Private Sector Pension Investor Type Source: Preqin Investor Interviews, June 2014 Source: Preqin Investor Intelligence

Fig. 15: Sample of Investors Looking to Commit to Venture Capital Funds in the Next 12 Months

Investor Type Location Investment Plans for the Next 12 Months MAHLE will commit a total of €10mn across one or two new private equity funds in the coming year; the typical amount it will commit will be between €5mn and €10mn. It will invest in venture capital vehicles Corporate MAHLE Germany and is open to investing in funds that focus on Europe, North America and Asia. For its forthcoming Investor fund commitments, the corporate investor is open to re-upping with existing managers from within its investment portfolio, as well as forming new GP relationships. Multilateral Multilateral Investment Fund (MIF) anticipates making four new commitments to private equity in the Government Investment US next 12 months. It will look to commit $5mn per fund, committing $20m in total. It will continue to target Agency Fund early stage seed venture capital vehicles focused on investing in South America. Nanjing Venture Capital (NJVC) plans to make new private equity fund commitments over the next Nanjing 12 months and will continue to invest in China-focused venture vehicles. The investment company is Investment Venture China likely to focus on vehicles investing in Chinese cities, including Xi’an, but will avoid those targeting the Company Capital most western part of China. It holds a preference for the clean technology, internet, technology and biomedical sectors. NJVC expects its allocation to private equity to increase over the longer term. Source: Preqin Investor Intelligence

Venture Capital Fundraising

Fig. 16: Venture Capital Funds in Market over Time, 2007- 2014 YTD (As at 23 October 2014)

Highest number of funds in market 700 581 than any year in the period 2007- 2014 (As of 23 October 2014). 600 581

500 No. of Funds 452 468 458 444 431 Raising 400 371 375 Aggregate Proportion of venture capital 300 Target Capital vehicles closed at or above their ($bn) 70% 200 target in 2014 YTD. 100 85 88 81 91 54 47 45 59

0 2007 2008 2009 2010 2011 2012 2013 2014 Preqin’s Funds in Market module contains detailed proﬁ les YTD on all 5,903 venture capital funds closed historically. Proﬁ les Source: Preqin Funds in Market include capital raised, interim closes and geographic focus. For more information, please visit: www.preqin.com/fim

Fig. 17: Aggregate Capital Raised by Venture Capital Funds by Primary Geographic Focus, 2007 - 2014 YTD (As Fig. 18: Fundraising Success of Venture Capital Funds, 2007 at 23 October 2014) - 2014 YTD (As at 23 October 2014)

60 100% 90% 15% Diversified Multi- 31% 31% 50 Regional 35% 80% 42% 43% 41% 41% 22% Exceeded Target 70% 40 Rest of World 60% 22% 18% 24% 50% Met Target 30 Asia 21% 19% 22% 29% 40% 20 63% Europe 30% Below Target Proportion of Funds 47% 48% 45% 20% 37% 38% 37% 10 30% North America 10% Aggregate Capital Raised ($bn)

0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014 YTD YTD Year of Final Close Year of Final Close Source: Preqin Funds in Market Source: Preqin Funds in Market

Fig. 19: Top Five Venture Capital Funds in Market by Target Size (As at 23 October 2014)

Fund Firm Fund Type Target Size (mn) Location Focus Invention Investment Fund Intellectual Ventures Early Stage: Seed 3,000 USD US III Tiger Global Private Tiger Global Management Venture (All Stages) 1,500 USD Global Investment Partners IX Khosla Ventures V Khosla Ventures Venture (All Stages) 1,000 USD US Riverwood Capital Partners China, Emerging Markets, Riverwood Capital Venture (All Stages) 1,000 USD II US India Inclusive Innovation National Innovation Council Venture (All Stages) 55,000 INR India Fund Source: Preqin Funds in Market

Venture Capital Deals

Fig. 20: Number and Aggregate Value of Venture Capital Fig. 21: Aggregate Value of Venture Capital Deals by Deals, 2007 - Q3 2014* Region, 2007 - Q3 2014*

2,500 25 16 Aggregate Deal Value ($bn) 14 2,000 20 12

1,500 15 10 8

1,000 10 6 No. of Deals 4 500 5 2 Aggregate Deal Value ($bn) Aggregate Deal Value 0 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014

No. of Deals Aggregate Deal Value ($bn) North America Europe Greater China India Israel Other

Source: Preqin Venture Deals Analyst Source: Preqin Venture Deals Analyst Fig. 22: Proportion of Number and Aggregate Value of Fig. 23: Global Number and Aggregate Value of Venture Venture Capital Deals by Industry, 2014 YTD (As at 14 Capital Exits by Type and Aggregate Exit Value, 2007 - Q3 October 2014)* 2014 YTD

35% 350 45 Aggregate Exit Value ($bn) 29% 30% 40 26% 300 25% 35 20% 250 20% 30 19% 16% 15% 200 25 15% 12%15% 20 10% 8% 150

7% No. of Exits 15 Proportion of Total 5% 3%3% 3% 3% 3% 100 3%3% 2% 2% 1% 2% 2% 1% 1% 10 0% 50 5 0 0 Other Other IT Internet Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Industrials Healthcare

Consumer 2007 2008 2009 2010 2011 2012 2013 2014 Discretionary Electronics

Business Services IPO Write Off Semiconductors & Clean Technology Telecoms & Media Food & Agriculture

Software & Related Sale to GP Trade Sale No. of Deals Aggregate Deal Value Aggregate Exit Value ($bn)

Source: Preqin Venture Deals Analyst Source: Preqin Venture Deals Analyst Fig. 24: Five Largest Venture Capital Deals in 2014 YTD (As at 14 October 2014 )

Portfolio Company Deal Deal Primary Stage Investor(s) Location Name Date Size Industry Series D/ 1,200 BlackRock, Fidelity Equity Partners, Google Ventures, Kleiner Perkins Uber Technologies, Inc. Jun-14 US Telecoms Round 4 USD Caufi eld & Byers, Menlo Ventures, Summit Partners, Wellington Management Accel Partners, DST Global, GIC Private Limited, Iconiq Capital, Morgan Unspecifi ed 1,000 Flipkart Jul-14 Stanley Alternative Investment Partners, Naspers, Sofi na, Tiger Global India Internet Round USD Management Series F/ 740 Cloudera Mar-14 Intel Corporation US Software Round 6 USD 615 Consumer Beingmate Group Co., Ltd Aug-14 PIPE Fonterra Ltd. China NZD Products Unspecifi ed 475 Andreessen Horowitz, Dragoneer Investment Group, Sequoia Capital, T Airbnb Aug-14 US Internet Round USD Rowe Price

Source: Preqin Venture Deals Analyst

Preqin’s Venture Deals Analyst online service provides comprehensive information on over 72,000 venture capital deals, including deal date, size, industry, stage and much more. For more information, please visit: www.preqin.com/vcdeals

*Figures exclude add-ons, grants, mergers, venture debt and secondary stock purchases

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