a venture capital perspective - gamiel gran partner sierra ventures
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Company Logo
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Company Logo
A Venture Capital Perspective
Gamiel Gran - Partner Sierra Ventures
October 6, 2011
Venture Capitalist Perspective
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Getting Funded – some insights
ENTREPRENEURS(Starting and Building
Companies)
VENTURE CAPITALISTS(Finding and Funding
Entrepreneurial Companies)
The Venture Capital ProcessINSTITUTIONAL INVESTORS
(Limited Partners – e.g. Endowments, Pension Funds)
Venture Capital 101 Stanford University Graduate School of BusinessPeter C. Wendell, Managing Director Sierra Ventures
• Long-term funders of VC firms (10-year contract, funds flow slowly)
• Need out-sized returns (DJIA+5)
• Want access to “best” firms; comp issues
• Can drive cyclicality
• Equity investors (Not lenders); strike deals
• Pick winners and add value; wide variety of outcomes
• Firms often specialize and have multiple funds
• Long-terms funds, but liquidity focused
• VC as change agent; Value add
• Large sorting task; Deal flow
• Defining and focusing the pursuit of an opportunity
• Marshalling resources / maintaining control
• Attempting to create “virtuous cycle of success”
Institutional Investors
INSTITUTIONAL INVESTORS(Limited Partners – e.g.
Endowments, Pension Funds)
• Long-term funders of VC firms (10-year contract, funds flow slowly)
• Need out-sized returns (DJIA+5)• Want access to “best” firms; • Can drive cyclicality
• Asset allocation; Return expectations• L.P. - G.P. contracts; Compensation• Management Fees vs. Carry• History; Long view
VENTURE CAPITALISTS(Finding and Funding
Entrepreneurial Companies)
• Equity investors (Not lenders);
• Pick winners and add value; wide variety of outcomes
• Firms often specialize and have multiple funds
• Long-terms funds, but liquidity focused
• VC as change agent; Value add• Large sorting task; Deal flow• The "pitch" and the "deal" (ownership)• Buyers and Sellers; Liquidity• Perform or perish; Firm focus
Venture Capitalists
ENTREPRENEURS(Starting and Building
Companies)
• Defining and focusing the pursuit of an opportunity
• Marshalling resources / maintaining control
• Attempting to create “virtuous cycle of success”
• Outcomes vary widely, thus creating “inefficient market” for VC’s
• Size of outcome – Aligned Incentives• Shared vision (evolving)• Fit with VC (permanence)• Deals, valuation, and terms
Entrepreneurs
Annual Venture Capital Investments From 1981 - First Half 2011
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
8
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters
Venture Capital InvestmentsBy industry: Q2 2011
Visit www.pwcmoneytree.com for Industry definitions
Industry # 0f Deals
% Change in $ from Q1' 11
Software 254 35%Media and Entertainment
132 27%
Biotechnology 116 46%Medical Devices and Equipment
90 26%
Industrial/Energy 85 -35%IT Services 83 19%Consumer Products and Services
34 248%
Telecommunications
29 -10%
Business Products and Services
24 545%
Semiconductors 24 22%Networking and Equipment
21 -3%
Retailing/Distribution
19 403%
Electronics/Instrumentation
18 -62%
Financial Services 14 -32%
Computers and Peripherals
13 82%
Healthcare Services
8 -17%
Other 2 -56%Total 966 19%
Venture Capital InvestmentsBy region: Q2 2011
9
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters Q2 2011 Total Investments - $7,516.1 million in 966 deals
Region # of Deals % Change $ from Q1’ 11
Silicon Valley 319 14%
New England 119 56%
NY Metro 98 1%
Midwest 75 -11%LA/Orange County
54 27%
Southeast 45 -20%
DC/Metroplex 44 78%
Texas 38 -6%
Northwest 36 -6%Philadelphia Metro
29 -30%
San Diego 29 25%
Colorado 21 175%
South Central 18 -12%
North Central 17 85%
SouthWest 14 89%
Upstate NY 7 181%Sacramento/N.Cal
2 6%
AK/HI/PR 1 N/A
Total 966 19%
Corporate Acquisitions Successful Exits Create Successful Entrepreneurs
Cash of Top Consolidators
$300+B
Acquirer Target Multiple
20X
15X
15X
6X
Source: Capital IQ
2004 2005 2006 2007 2008 2009 20100
2
4
6
8
10
12
$10.5
$4.5$5.1
$10.3
$0.5$1.6
$7.0
Tota
l am
ount
rais
ed fr
om IP
Os
IPO Market Recovering from Dry Spell
►IPO Market Opened for High Quality Companies►High Revenue Bar►Longer Time
($ Billions)
IPO
*Source: Thompson Reuters & NVCA
Venture Capital Market SummaryMany Positive Signs
Good News
Money Flow is Up: $7.5B invested Q2’11 19% above Q1’11 4% above Q2’10
IPO’s are trending Up: Some big IPO’s, e.g. Linked In
M&A is trending Up: Top 15 public tech firms have
$300B cash E.g. Google bought 48
companies for $2B in 2010
New and Huge Markets Cloud Computing Social Mobile Big Data Analytics: Extra Advertising to Internet/Mobile
just beginning
Not So Good News
• Valuations are on the rise• “social” phase of the digital
revolution (Groupon, Facebook).
• Is this a bubble in the making?
• Capital intensive sectors (Life Sciences, Cleantech) challenges
• due to government policy uncertainties, both at the federal and state levels
• VC fundraising is down
• IPO and M & A markets are still weak by historical standards
• Macro trends – US, Japan, European Recession – Double Dip?
Global Fuel
• China based companies 23% US IPO’s in 2010 vs. 1% in 2009
• 90% kids under 15 live in emerging markets
• Global Internet usage 1.8 trillion min/mo
• Internet Users: China 420m, US 220m
• Cell Phone Users: China 790m, US 270m
• China #1 in car sales
• India population surpass China by 2020
• China the largest PC Market in 2Q11
Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Outlook and Questions
Big Data is at the Center of a New Wave of Opportunity…Insights still difficult
2009
800,000 petabytes
2020
35 zettabytes
as much Data and ContentOver Coming Decade
44x Business leaders frequently make decisions based on information they don’t trust, or don’t have
1 in 3
83%of CIOs cited “Business intelligence and analytics” as part of their visionary plansto enhance competitiveness
Business leaders say they don’t have access to the information they need to do their jobs
1 in 2
of CEOs need to do a better job capturing and understanding information rapidly in order to make swift business decisions
60%
… And Organizations Need Deeper Insights
Of world’s datais unstructured
80%
Big Data – Segments of Opportunity
Spreadsheets/Visualization
Connectors/Integration
Hadoop Distributions
File Storage
Design &Deploy
*Now Hitachi
AnalyticalApplications
ProcessingPlatform
*Now Teradata *Now HP *Now EMC
Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Outlook and Questions
2010 2011 2012 2013 20140
1
2
3
4
5
6
7 Total - Virtualization Software
CLOUD COMPUTING Tectonic Market Shift
MONITORING AND MANAGEMENT
Across Multiple Platforms
Integrate Physical & Virtual
Deployment / Mgmt Software
Cloud Computing – Enterprise Adoption
2010 2011 2012 2013 20140
1
2
3
4
5
6
7Software Infrastructure
Management Software
Hosted Virtual Desktop
CLOUD APPLICATION SOFTWARE
Migrating Legacy Apps
Cloud Enabling New Apps
Ensure App. Availability
DESKTOP VIRTUALIZATION
Integrate Server & Desktop
Application Awareness
Virtual Desktop Management
Virtualization Software – Market Size ($B)
PortfolioInvestment Opportunities
CLOUD PROVIDERS
Public Cloud
Virtualization
Private Cloud
Hybrid Cloud
LargeSMB
ENTERPRISE
Am
ount
($-
Bill
ion)
Source: IDC
Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Outlook and Questions
Mobile: At the tipping point...
Mobile: It’s all about the App
Wireless – Segments of Opportunity
Distribution (App Stores)
Wireless Clouds
Security
Applications
Testing/ Deployment*Now Teradata *Now HP *Now EMC
(in progress)
(via PhoneGap)
(Aptana Studio IDE)
Analytics
Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Outlook and Questions
Social: The new platform for access
Social: Disrupting Traditional MarketsEnterprise... Must evolve to the Social Enterprise
Social: Gamification as the new Engagement Model
NIC
HE
GEN
ERA
L
GLOBALREGIONAL
GLOBAL SOCIAL NETWORKS (~100M USERS)
PortfolioInvestment Opportunities
Social: Disrupting the Internet Landscape
ONLINE AD MARKET DISRUPTION
<5% of Online Ad Market
Social Ad Enabling Software
Social Ad Analytics
2008 2009 2010 2011 20120.0
0.5
1.0
1.5
2.0
2.5
0%
20%
40%
60%
80%
100%
0.3
0.600000000000001
1
1.41.6
Soci
al N
etw
ork
Use
rs (
B)
% of Internet U
sers
WORLD WIDE SOCIAL NETWORK USERS (Billions)
NEXT GENERATION SOCIAL APPS
Social Gaming (~$3.6B)
Social = “Internet” (Social Commerce, Travel, Jobs ...)
Application Analytics
SOCIAL CRM - ENTERPRISE
Social Media Monitoring
Social Customer Support
Collaboration Software
100%
80%
60%
40%
20%
0%
Source: eMarketer and Sierra Ventures
Major IT DisruptorsVenture Capitalist Perspective of Emerging Technologies
Agenda
State of Venture Capital – Investment climate, IPO’s from a long term perspective
Big Data and Analytics – Massive Scale in Real-time – Those who can leverage will win
Cloud - The New Data Center – ‘X-as-a-Service’ and at commodity prices
Mobility – The New Starting Point – consumerization sets the standard for access, simplicity and adoption
Social – The New Internet – the social chain as the new dimension across the globe
Sierra Ventures – Our Approach
Outlook and Questions
30
Sierra Ventures – since 1982 - $1.5Billion AUM Investing Strategy – Early Stage, Global, IT Sectors
Growth
Early Stage
Stage
$3 – $8M Initial$8 – $12M Total
Ownership 20%-25%
Investments and ExitsAcross the U.S /
Canada.
Size Geography
(NASD: AUTH)(NASD: FIRE) (MMYT) (MERU)
Some IPO’s&
Acquisitions
Sierra Ventures Deal Flow Thousands of Ideas to a Few Funded
31
►Independent origination►Sub-group evaluation►Partnership decision
0.33% deals reviewed are funded
Sierra CIO Advisory Board Global IT Leaders -- Meet Monthly
Technology Finance
Pharma/Health/Govt.Consumer / Manufacturing / IndustrialRetail / Hospitality
Telco / Media
34
Marc BenioffCEO
Eric SchmidtCEO
Meg Whitman CEO
Charles Phillips Co-President
Joe TucciCEO
Enrique SalemCEO
Tom SiebelCEO
Mark HurdCEO
Sierra CIO SummitEnable Strategic Exchange of Best Practices for CIO Board Members
Five Sierra “CIO Summits” held since 2006 – Each with a Major Keynote
Cloud
BigDataMobile
Social
Sierra Ventures Tracking: The Ripple Effect of Disruptions
PrivateCloud
Software
Mobile App Dev Platform
PredictiveAnalytics
Social Media
Presence
Recent Liquidity Events
● Greenplum purchased by EMC for $400M (closed 8/2010)
● American Fiber Systems purchased by Zayo Group for $115M (closed 9/2010)
● Simplify Media purchased by Google (closed 3/2010)
● MakeMyTrip.com completes $80M IPO (8/2010)
● CarWale purchased by Axel Springer (closed 12/2010)
● Makara purchased by Redhat (closed 11/2010)
● InvenSense files for $100M IPO led by Goldman and Morgan Stanley
Investor Deck Presentation Guidelines
● Company Snapshot [1-2 slides] Simple single sentence overview of the
company Snapshot Data Date of Incorporation Number of Employees Office Locations Total funds raised to Date
● Team [1-2 slides] Founders & Management Board of Directors/Board of Advisors Problem [1 slide] Describe the customer pain Describe how that pain is met today
● Total Addressable Market [1 slide] Calculate or provide third party research on the
TAM (top down and bottoms up) Solution [open] Explain your Company’s value proposition in
order to solve the problem described in the previous “Problem” slide Describe the Product (functionality, features,
architecture, what core IP do you have). Show your Product development roadmap Provide use cases (or customer case studies if
appropriate)
● Product Timing [1 slide] Define recent trends that make your solution
possible Show us the historical evolution of your
category if it is an existing market Business Model [open] Source of Revenue and ASP Distribution channels Customer list and pipeline
● Competition [1-2 slides] List your direct and indirect competition Show where your product physically sits in the
ecosystem Provide detail on the advantages/disadvantages
of your product vs. what is currently available through competitors (matrix view
preferred)
● Financials [1-2 slides] Income Statement, Balance Sheet and Cash
Flow statement and forecast Summary of the Cap table Summarize the current financing round
Steps
● Who to pursue – do your diligence Crunchbase, PEHub, VentureBeat, VC sites, VC FB/Twitter
● Introduction Work your network – Paragraph from your ‘recommender’
● Pre-View Call Likely a phone call – Ask questions – Have examples Know their background Enable possible next steps – “We wont begin fundraising until... “
● First Meeting Investor Deck – Team, Traction, Technology Build your advocate – what’s their outcome goal
● Partner Meeting Mixed Audience – do your homework Predefine an outcome – to move to due diligence calls (have some done already)
● Due Diligence Your contacts .... And those you don’t know. (help make it simple)
● Term Sheet Study the terms early – How competitive is the deal
Due Diligence Effort
● Tab 1 Executive Summary/Business Plan
● Tab 2 Investor Presentation
● Tab 3 Sales & Market Briefing
● Tab 4 Product Information
● Tab 5 Technology Information
● Tab 6 Competitive analysis
● Tab 7 Operations - Engineering Schedule/Manuf process/Quality Metrics
● Tab 8 Financials
● Tab 9 Customer references
● Tab 10 Future product roadmap(go over new products, what’s exciting..)
● Tab 11 Valuation & Exit Analysis
● Tab 12 Management Bios & References
● Tab 13 Cap Tables & Term Sheets
● Tab 14 Patents & Applications (patent review – what’s defendable?)
● Tab 15 Market research, white papers, news articles, etc.
● Tab 16 Misc. emails, etc.
Funding and Rounds
● Funding Expectations: $10M company or $200M+...
● Less is More: Raise what you need – Milestones support valuation
● Preferred = Risk
● Founder: 1-4 (2 equal partners ideal)
● Convertible Debt (Bridge Loan) at 20% discount to next round
● Venture Debt: too early must be collateralized, venture debt generally 20-30% of last round, Servicing the debt with Capital OK, warrants nominal, Prime+1.5pts
● Employee Option Pool: 20%
● CxO Hires: CEO 5-7%, COO 2-3%, VPS/VPE/VPM ~1½%
# of shares Price/share Amount raised Pre-money Post MoneyInvestor
Ownership % Range Founder % post-round
Founding 950,000 - - - - 100.0%Angel rnd 50,000 1.00$ 50,000$ 950,000$ $1,000,000 5.00% expect 4-15% 95.0%Series A 333,333 6.00$ 2,000,000$ 6,000,000$ $8,000,000 25.00% expect 20-30% 71.3%Series B 711,111 11.25$ 8,000,000$ 15,000,000$ $23,000,000 34.78% expect 20-30% 46.5%Debt, 2% 3,556 11.25$ 2,000,000$ 23,000,000$ $25,000,000 0.17% nominal 46.4%