s/National Venture Capital Association s/National Venture INCLUDING STATISTICS FROM THE STATISTICS INCLUDING YEARBOOK 2010 MoneyTree™ Report based on data from Thomson Reuters Report based on data from MoneyTree™ PricewaterhouseCooper NATIONAL NATIONAL NATIONAL VENTURE VENTURE CAPITAL CAPITAL ASSOCIATION ASSOCIATION PREPARED BY BY PREPARED PREPARED NATIONAL VENTURE CAPITAL ASSOCIATION YEARBOOK 2010 Suite 850 www.nvca.org Arlington, VA 22209 Arlington, VA 1655 Fort Myer Drive Myer 1655 Fort 18th Floor Times Square 3 New York, NY 10036 New York, www.thomsonreuters.com March 2010 Dear Reader: As the nation and world works through the many economic and fiscal challenges of our time, the US venture capital industry and the entrepreneurial sector are being looked to for job creation, economic development, better healthcare, cleaner technology, and other answers to today’s opportunities. The statistics gathered and tracked by Thomson Reuters for ThomsonONE.com (formerly VentureXpert) and this Yearbook are essential to enabling analysis of venture capital by pol- icy think tanks and economists and for use by government officials and other decision makers. For example, recent analysis of Thomson Reuters data by IHS Global Insight shows that while venture capital investment represents 0.2% of US GDP, the revenue of companies created by the industry represented 21% of GDP in 2008. For every venture capital dollar invested in 1970-2001, there was $9.88 in US revenue during 2008 in those companies and for every $24,564 of venture capital invested in 1970-2001, there was one ongoing job at the end of the year 2008. On behalf of the National Venture Capital Association board of directors and staff, we are pleased to present you with the latest statistics that describe the activity of the venture capital industry in the United States. These statistics reflect yet another all-time high level of survey participation by venture capital practitioners. This support has allowed us to accurately report industry activity. Your comments are always welcome at [email protected]. NVCA believes that it is more important than ever to effectively tell the story of venture capital, differentiate it from other forms of alternative assets, and explain what’s needed to continue creating great, leading-edge companies. We believe that a strong venture capital industry is essential to America’s future and improving our quality of life. Very truly yours, John Jaggers Mark G. Heesen John S. Taylor Sevin Rosen Funds NVCA President NVCA VP Research NVCA Director & Chairman of the NVCA Research Committee NVCA BOARD OF DIRECTORS 2009-2010 Executive Committee Terry McGuire Kate Mitchell Chairman Chairman-elect Polaris Venture Partners Scale Venture Partners E. Rogers Novak Ira Ehrenpreis Treasurer At-Large Novak Biddle Venture Partners Technology Partners Paul Maeder At-Large Highland Capital Partners Research Committee John Jaggers Mike Elliott Research Chairman Noro-Moseley Partners Sevin Rosen Funds Diana Frazier Stephen Holmes FLAG Capital Management, LLC InterWest Partners Board Members At-Large Keith Crandell Barbara Dalton ARCH Venture Partners Pfizer, Inc. James Fleming Michael Greeley Columbia Capital Flybridge Capital Partners Josh Green Jim Hale, III Mohr, Davidow Ventures FTV Capital Deepak Kamra Robert Kibble Canaan Partners Mission Ventures Jack Lasersohn Pascal Levensohn The Vertical Group Levensohn Venture Partners Trevor Loy James Marver Flywheel Ventures Vantage Point Partners Jason Mendelson Sherrill Neff Foundry Group Quaker BioVentures David Prend Jonathan Root RockPort Capital Partners U.S. Venture Partners Ray Rothrock Venrock Associates 2 Thomson Reuters 2010 National Venture Capital Association Yearbook For the National Venture Capital Association Prepared by Thomson Reuters Copyright © 2010 Thomson Reuters The information presented in this report has been gathered with the utmost care from sources believed to be reliable, but is not guaranteed. Thomson Reuters disclaims any liability including incidental or consequential damages arising from errors or omissions in this report. Thomson Reuters 3 National Venture Capital Association 2010 Yearbook National Venture Capital Association Thomson Reuters 1655 Fort Myer Drive, Suite 850 3 Times Square, 18th Floor Arlington, Virginia 22209-3114 New York, NY 10036 Telephone: 703-524-2549 Telephone: 646-223-4431 Telephone: 703-524-3940 Fax: 646-223-4470 www.nvca.org www.thomsonreuters.com President Vice President, Private Equity Products Mark G. Heesen Elizabeth Benson Vice President of Research Vice President, Deals and Private Equity Operations John S. Taylor Shariq Kajiji Senior Vice President U.S. Publisher Molly M. Myers Jim Beecher Vice President of Federal Policy & Political Advocacy Editor-in-Charge, Deals Group Jennifer Connell Dowling David Toll Vice President of Strategic Affairs & Public Outreach Global Private Equity Operations Manager Emily Mendell Alex Tan Vice President of Membership & Member Firm Operations Manager Private Equity—North America Liaison James Thisdelle Janice Mawson Contributor & Press Management Director of Federal Policy & Political Advocacy Matthew Toole Emily A. Baker Product Manager Director of Marketing Lori Ann Silva Jeanne Lazarus Metzger Team Manager Director of Federal Life Science Policy Paul Pantalla Kelly Slone Research Editor Public Policy Manager Eamon Beltran Sumi Singh Senior Art Director Membership Coordinator & Database Administrator David Cooke Terry Samm Sales Manager – Publications (Buyouts, VCJ) Accounting Manager Greg Winterton (646-223-6787) Beverley Badley ThomsonONE.com Sales: Manager of Administration and Meetings Bill Moore (646-223-7285) Allyson Chappell Administrative Assistant Gwendolyn Taylor Research Lab Mavis Moulterd 4 Thomson Reuters Table of Contents What is Venture Capital? . 7 Executive Summary . 9 Introduction . 9 Industry Resources . 9 Capital Commitments . .. 10 Investments. 11 Portfolio Company Post-Money Valuations. 12 Exits: IPOs and Acquisitions . .. 12 Industry Resources . 15 Methodology . .. 15 Capital Commitments . 19 Methodology . 19 Investments.. 23 Methodology . 23 Portfolio Company Valuations . 43 Exits: IPOs and Acquisitions . 49 Methodology . 49 Appendix A: Glossary . 57 Appendix B: MoneyTree Definitions . 73 Appendix C: MoneyTree Geographical Regions . 75 Appendix D: Industry Codes (VEICs). 77 Appendix E: Industry Sector VEIC Ranges . 87 Appendix F: Stage Definitions . 89 Appendix G: Data Sources and Resources. 91 Appendix H: Portfolio Company Valuation Guidelines. 95 Appendix I: International Convergence . 107 Appendix J: Non-US Private Equity . 111 Thomson Reuters 5 This page is intentionally left blank. 6 Thomson Reuters What is Venture Capital? Venture capital has enabled the United States to sup- Venture Capital Backed Companies port its entrepreneurial talent and appetite by turning Known for Innovative Business Models ideas and basic science into products and services Employment at IPO and Now that are the envy of the world. Venture capital funds build companies from the simplest form – perhaps Company As of IPO Current # Change The Home Depot 650 331,000 330,350 just the entrepreneur and an idea expressed as a busi- Starbucks Corporation 2,521 176,000 173,479 ness plan – to freestanding, mature organizations. Staples 1,693 75,588 73,895 Whole Foods Market, Inc. 2,350 52,900 50,550 eBay 138 15,500 15,362 Risk Capital for Business Venture Capital Backed Companies Venture capital firms are professional, institutional Known for Innovative Technology and Products managers of risk capital that enables and supports the Employment at IPO and Now most innovative and promising companies. This Company As of IPO Current # Change money funds new ideas that could not be financed Microsoft 1,153 91,000 89,847 with traditional bank financing, that threaten estab- Intel Corporation 460 86,300 85,840 Medtronic, Inc. 1,287 40,000 38,713 lished products and services in a corporation, and that Apple Inc. 1,015 35,100 34,085 typically require five to eight years to be launched. Google 3,021 16,805 13,784 JetBlue 4,011 11,632 7,621 Venture capital is quite unique as an institutional Source: IHS Global Insight. Current data is FY 2007 Year End Data investor asset class. When an investment is made in a company, it is an equity investment in a company whose stock is essentially illiquid and worthless until a companies have received funding but no one- or two- company matures five to eight years down the road. person company has ever gone public! Along the Follow-on investment provides additional funding as way, talent must be recruited and the company scaled the company grows. These “rounds,” typically occur- up. Ask any venture capitalist who has had an ultra- ring every year or two, are also equity investment, with successful investment and he or she will tell you that the shares allocated among the investors and manage- the company that broke through the gravity evolved ment team based on an agreed “valuation.” But, unless from the original business plan concept with the care- a company is acquired or goes public, there is little ful input of an experienced hand. actual value. Venture capital is a long-term investment. Deal Flows — Where The Buys Are More Than Money For every 100 business plans that come to a venture The U.S. venture industry provides the capital to cre- capital firm for funding, usually only 10 or so get a ate some of the most innovative and successful com- serious look, and only one ends up being funded. The