current views on entrepreneurship monte jade october 11, 2007 milton chang [email protected]
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Current Views onEntrepreneurship
Monte JadeOctober 11, 2007
Milton [email protected]
www.incubic.com
Topics
• Current startup/funding environment
• Lessons learned from experience
• Where are the opportunities?
• Startup business models
• Take away messages
Am
ou
nt
Investe
d
($B
)N
um
ber o
f Deals
Source: Dow Jones VentureOne/Ernst &Young
YTD06*: 1Q06 – 3Q06
Equity into VC-backed companies $25B annual
$19.5$22.4$23.7
$19.6$22.1
$36.4
$94.8
$49.5
$17.9$13.1
$9.2
1851240323182213
2417
3296
6341
4590
25472211
1912
$0
$25
$50
$75
$100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005YTD06*
0
1,000
2,000
3,000
4,000
5,000
6,000
Amount Invested ($B) Number of Deals
IPO Activity Has Increased Somewhat~56 IPOs vs ~400 M&A transactions 2006
Q2 2007, 22 IPOsstill far fewer than “old days”
Am
ou
nt
Rais
ed
($
B)
Ven
ture
-Backed
IP
Os
$3.7$2.6$5.0
$1.5$1.6$1.8
$19.2$19.5
$3.7$4.6
$8.756
42
67
232022
202
250
68
120
216
$0
$5
$10
$15
$20
$25
$30
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0
50
100
150
200
250
Amount Raised ($B) Venture-Backed IPOs
Taking longer to reach IPO Median Time From Initial Funding to IPO – taking longer, mature companies
Nu
mb
er
of
Years
6.2
5.65.75.7
3.6
4.5
3.12.82.8
3.13.5
0
1
2
3
4
5
6
7
1996 1998 2000 2002 2004 2006
Source: Dow Jones VentureOne/Ernst &Young
Increasing Valuations for IPOsOnly larger value companies reach IPO – >> 1996
(Q2 2007 >$450M)
Med
ian
Pre
-Valu
ati
on
at
IPO
($
M)
$202
$166
$224$226$229
$281
$363
$314
$172
$105$79
$0
$75
$150
$225
$300
$375
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dow Jones VentureOne/Ernst &Young
>$400
IPOs: Amount raised prior to going public 4x more expensive than 1996, trend is upward
Med
ian
Am
ou
nt
Rais
ed
Pri
or
to
IPO
($
M)
$51.0$51.4
$73.2
$60.2
$49.0$47.8$46.9
$31.3
$22.4
$13.0$15.0
$0
$25
$50
$75
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
>$67
Gains from M&A Exits Increasing: > $50MMedian Amount Paid in M&As vs. Median Amount Raised Prior to M&A
< 100 companies per quarter
Med
ian
Am
ou
nt
Rais
ed
Pri
or
to
M&
A (
$M
)M
ed
ian
Am
ou
nt P
aid
($
M)
$17 $19
$23$21$20$15$10$11$7$6$6
$52$47
$39
$24
$18
$27
$100
$55
$31$33$40
$0
$25
$50
$75
$100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
$0
$25
$50
$75
$100
Median Equity Raised Prior to M&A Median Amount Paid ($M)
Source: Dow Jones VentureOne/Ernst &Young
Older Companies Being AcquiredMedian Time From Initial Equity Funding to M&A taking longer
Nu
mb
er
of
Years
4.7
3.5
3.0 2.82.4
2.0
2.8
3.7
4.7
5.4
6.0
0
2
4
6
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dow Jones VentureOne/Ernst &Young
Venture industry 2006-Q2 2007
- Equity into VC backed companies about 25B annually
- IPO activity increased, 22 in Q2 2007, - Medium IPO Pre 452M Vs 202 last year- Taking over 6 years to IPO- Takes more $ to get to IPO, $67M median
- M&A around 100 exits per quarter, median 52M value- Raise prior to M&A Medium $23M - They take 6 years also
Interpretation, VC Trends > 2007
- “Megafunds”- Geared for >$500M IPOs - International offices, India, China, Israel- Aligned with the banking industry
- Smaller funds - Open for first-time entrepreneurs- Geared for >50M M&A, potentially larger- Looking for capital efficient investment (<$20M all-in)
“Trend” areas of interest, 2007Areas of current VC interest 1. Web 2.0
- the next “YouTube”, “you”, gaming, entertainment, advertising
- 2. Mobile phenomenon.- Connected life – web, WAP, advertising
- 3. All the IT to support web and mobile - 1B/year handsets drive “disposable Moore’s law”- Video traffic majority of all network bandwidth- Semiconductor, networking, security
- 4. Cleantech- Alternative energy- Now >10% of venture investing, >$2B per year
- 5. Healthcare- >$95B technology market – split:
- aging/vascular/obesity/orthopedics- healthy/vanity/aesthetics
Built Ruby laser in 1964
Laser components and tools: Newport; Uniphase; Lightwave; New Focus…
Laser applications: Iridex…
Laser serving new fields: Arcturus
Make available entrepreneurial experience as resource for first-time entrepreneurs: Incubic
Communications: OpVista…
Lessons Learned
It takes more than a useful product idea; everything has to be aligned : Business model consistent with size of the opportunity, personal objectives, resources, team capability, financing strategy… Execution: being an industry- insider in the “power-structure”…..investor support and being connected to the financial community
Most failures are due to overly ambitious goals. The business model should focus on creating value efficiently, capitalizing on your strengths and competitive advantages…
Where are the opportunities? 1) Random “good” ideas
2) Your own area of expertise – industry insider
3) New emerging technologies areas
Startup Models (How people start businesses)
1) Traditional Sand Hill Road VC funded startup
2) Start with business “prototype”…and grow over time
3) “Lifestyle” business
Summary
Back to basics: Capital efficiency, ROI, competitive advantages
A successful startup requires a useful product idea, alignment of business strategy and “resources,” plus active participation of industry insiders
A startup company should first focus on capitalizing on its strengths to create value efficiently by building a “prototype” of the business
Turn over new rock: Serve emerging fields with your expertise, and to become an industry insider over time
Take Away Messages
• Prepare for entrepreneurship by taking on projects at work.
• Think small: You are more likely to succeed with a modest goal.
• Think long-term: Entrepreneurship is a life-long preoccupation. Once you have a success, even a small success, opportunities are likely to come your way.
• Seek self-consistency. Plan thoroughly. Do both top-down and bottom-up analysis of your business idea.
• The objective is not just to start; it is to build a business to successful completion. Before that, it is just a job!