idcee 2012: cee on the global vc map - drew guff (managing director & founding principal @...
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http://idcee.org/p/drew-guff/ Drew J. Guff is a Managing Director and founding principal of Siguler Guff, a global multi-strategy private equity firm managing domestic and international assets on behalf of corporate and public employee benefit plans, endowments, foundations, government agencies, financial institutions, sovereign wealth funds, family offices and high net worth individuals. The Firm's funds target carefully defined areas of market inefficiency, including distressed assets, U.S. small buyouts and the Emerging Markets. Pic's are here: http://www.flickr.com/photos/idcee/sets/ More @ http://idcee.org Follow us on: YouTube: http://www.youtube.com/user/OfficialIDCEEChannel Facebook: https://www.facebook.com/IDCEE Linkedin: http://www.linkedin.com/groups/IDCEE-3940138 Twitter: https://twitter.com/idcee_eu Google+: http://gplus.to/idcee Flickr: http://www.flickr.com/photos/idcee/collections/TRANSCRIPT
A Presentation to Lorem Ipsum Plc May 2007
Emerging Markets on the Global VC Map
IDCEE 2012
October 18, 2012
Confidential
Siguler Guff & CompanyOctober 2012
+ Siguler Guff BRIC Opportunities Funds: Siguler Guff manages one of the largest pools of fund-of-funds assets investing in the large and dynamic emerging economies of Brazil, Russia, India and China
02
Siguler Guff Investments in Technology
+ Siguler Guff co-managed a series of Venture Lending & Leasing (VLL) funds in Silicon Valley alongside Western Technology Investments+ Transactions in the VLL funds include:
Western Technology manages the day-to-day operations of the VLL funds1Russia funds are managed by Russia Partners, an affiliate of Siguler Guff & Company
China India Brazil Russia1
Siguler Guff & CompanyOctober 2012
+ There has been a huge paradigm shift in VC over the last 12 years
+ 1990s+ Average net multiples to LPs were approximately 3-4x invested capital + Average life of a portfolio companies was 3.4 years+ Average fund sizes below $100 million+ Portfolio companies went public earlier and while they were “smaller”+ The IPO market was very robust
+ 2000s+ Returns have been low, and even negative for the last 10-15 years
+ Average fund multiples are only 1.2x+ Since 2000, only 6% of VC funds have had IRRs in excess of 20%, as
competition for deals have driven up entry multiples
+ Average life of portfolio companies is eight years+ With the average term of a VC fund at 10 years, there is a huge timing
mismatch+ VC fund terms must now be at least 15 years to match holding period of
investments
Development of Global Venture Capital Industry
03Source: Preqin
Siguler Guff & CompanyOctober 2012 04
Global VC Returns Have Steadily Deteriorated Since the Late 1990s
Source: Cambridge Associates
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
4.5x
5.0x
-10%
0%
10%
20%
30%
40%
50%
60%
TVPI Arithmetic Mean Net IRR Arithmetic Mean
Siguler Guff & CompanyOctober 2012
Fewer Funds Raising More Capital in the U.S. Since 2005
05
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
$0
$2
$4
$6
$8
$10
$12
0
200
400
600
800
1,000
1,200
Avg fund size ($ M) Firms actively investing (U.S.)
Source: NVCA
Siguler Guff & CompanyOctober 2012
Wealth Creation in Tech Companies is Extremely Concentrated
06
“~2% of companies accounted for ~100% of net wealth creation of 1,720 Tech IPOs in USA (1980-2002)”
- The Technology IPO Yearbook: 9th Edition – 23 Years of Tech Investing, Morgan Stanley
“97% percent of the VC returns in any given year come from 15 investments, among the thousands that receive funding”
- Andreessen Horowitz
Siguler Guff & CompanyOctober 2012
Because Only A Few Can Access the “Magic 15” Deals
07
All VC Firms All VC, Minus 5 Firms All VC, Minus 10 Firms0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
38.2%
16.1%
9.6%
U.S. Venture Capital 15-Year Returns*
Source: Cambridge Associates LLC Non-Marketable Alternative Assets Database*Returns as of March 31, 2010. Returns are end-to-end pooled means to LPs, net of management fees, expenses, and carried interestThe end-to-end performance calculation is similar to the IRR, however it is measuring the return between two points in time. The calculation takes into account the beginning NAV as the initial investment. The subsequent quarterly cash flows and the ending NAV for the specified time period (i.e. one quarter, one year, etc.) are utilized in the same fashion as the IRR calculation. All returns greater than one year are annualized.
Siguler Guff & CompanyOctober 2012
VC is Going Global in Search of Returns
08Source: NVCA Survey, 2011
Already invest outside the U.S.
Plan to increase international investment
Plan to maintain current level of int'l investment
No plans to invest outside the U.S.
Plan to decrease international investment
0% 10% 20% 30% 40% 50% 60%
Siguler Guff & CompanyOctober 2012 09
Internet Penetration: Emerging Markets Drive Growth
Russia61 million users
+17% Y/Y43% Penetration
China513 million users
+19% Y/Y36% Penetration
India121 million users
+18% Y/Y8% Penetration
Brazil76 million users
+19% Y/Y37% Penetration
U.S.245 million users
+0.6% Y/Y78% Penetration
+ 44% of all global Internet users are located in the U.S., Russia, Brazil, India and China
Source: Internet user stats (2011 figures) from International Telecommunications Union and Morgan Stanley research
Siguler Guff & CompanyOctober 2012
EMs Account for 9 of the 10 Fastest-Growing Internet Markets
010
Rank Country
2008-2011 Internet User
Adds2011 Internet
Users YoY growthPopulation Penetration
1 China 215 513 19% 36%
2 India 69 121 18% 8%
3 Indonesia 37 55 22% 23%
4 Philippines 28 34 44% 35%
5 Nigeria 21 45 - 28%
6 Mexico 19 42 19% 37%
7 Russia 16 61 17% 43%
8 USA 15 245 1% 78%
9 Iran 14 37 - 48%
10 Turkey 11 36 26% 49%
Top 10 445 1,189.0 12% 32%
World 663 2250 8% 32%
Source: ComScore
Siguler Guff & CompanyOctober 2012
2007 2008 2009 2010 20110%
20%
40%
60%
80%
100%
120%
7.0%
22.0% 29.0% 32.0%
43.0%
8.0%
12.0%
18.0% 14.0%
7.0%
34.0%
26.0%
24.0% 15.0%
18.0% 25.0% 8.0%
7.0%
5.0% 5.0%
7.0% 7.0%
10.0% 24.0%
22.0%
China IndiaEmerging Asia ex-China and India* CEE & CISLatAm & Caribbean MENASub-Saharan Africa Multi-region
China – Primary Destination for International PE&VC
011Source: EMPEA; Funds raised do not include global funds with allocations to China
EM PE Fundraising by Region (% of total capital raised)
Siguler Guff & CompanyOctober 2012
China – Scale and Strong Domestic Consumption Story
012
Sources: Goldman Sachs, Datastream, Siguler Guff Analysis
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
BRICs Consumption as Proportion of U.S. Consumption
Russia India China Brazil
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Brazil Russia India China BRICs G7
BRICs Population Entering the Middle Class Income Bracket by 2020 (Millions)
2000 2010 2020
Siguler Guff & CompanyOctober 2012
India – Soft Fundraising Environment
013
Source: EMPEA
2004 2005 2006 2007 2008 2009 2010 2011$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Funds Raised and Invested ($M)
Funds Raised Funds Invested
Siguler Guff & CompanyOctober 2012
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
1H 2
012
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800Value raised ($ M) Number of New Funds
014
CEE is Becoming a Destination for VC Investment
+ Central and Eastern Europe has become a destination for VC investing in the past ten years, after being largely ignored in the 1990s
+ 97 CEE companies received venture funding totaling €94 million in 2011, driven by start-up investments (+85% YoY in value, +76% by number of companies)
+ Ukraine, Poland, Hungary, the Czech Republic and Romania together accounted for 92% of total investment value and 70% of total number of companies financed in CEE in 2011
Source: EVCA, Preqin, Siguler Guff estimates
0
12
4 4 8
6
5
310
4
94
11
6
4
7
8 2
#
CEE-focused VC Fundraising
Siguler Guff & CompanyOctober 2012
Venture Funds Have Been the Most Successful Fundraisers in CEE
015
2010 2011
Amount No. of Funds Amount No. of Funds
Early stage € 82,020 4 € 59,730 4
Later stage venture € 8,420 1 € 10,120 1
Balanced € 46,030 2 € 124,840 3
Total venture € 136,470 7 € 194,690 8
Growth € 20,000 1 € 51,300 1
Buyout € - 0 € - 0
Mezzanine € - 0 € - 0
Generalist € - 0 € - 0 Independent Funds
Raised € 156,470 8 € 245,990 9
Source: EVCA
Siguler Guff & CompanyOctober 2012
CEE’s Internet Audience Grew to Over 200 Million in 2011
016
+ The CEE region is larger than both Brazil and India in terms of Internet audience
+ Russia is the largest Internet audience in Europe
Source: Internet World Stats
Russia
Turk
ey
Pola
nd
Ukrai
ne
Roman
ia
Czech
Rep
.
Hunga
ry
Belar
us
Bulga
ria
Slov
akia
Croat
ia
Lith
uani
a
Slov
enia
Latv
ia
Esto
nia
0
10
20
30
40
50
60
70
Siguler Guff & CompanyOctober 2012
Mobile Page Views in CEE Grew Robustly in 2011
017
CEE re
gion
Lith
uani
a
Esto
nia
Pola
nd
Bulga
ria
Turk
ey
Czech
Rep
.
Russia
Hunga
ry
Latv
ia
Belar
us
Slov
enia
Croat
ia
Ukrai
ne
Slov
akia
0%
200%
400%
600%
800%
1000%
1200%Growth in Mobile Page Views, 2010-2011
Source: Gemius
Siguler Guff & CompanyOctober 2012
Slovenia
Turkey
Lithuania
Croatia
Czech Rep.
Serbia
Hungary
Estonia
Russia
Latvia
Slovakia
Ukraine
Romania
0% 5% 10% 15% 20% 25% 30%
27.6%
23.7%
23.7%
15.5%
14.3%
13.3%
12.9%
12.7%
11.8%
10.7%
9.3%
8.9%
8.4%
But Significant Upside Still Remains
018
Source: Gfk Group
CEE Smartphone Penetration:
14.8% vs.
40-50% in U.S.,
Western Europe
Siguler Guff & CompanyOctober 2012 0
19
CEE Mobile Data and Social Network Penetration
Sources: Gemius, Vincos.it
Siguler Guff & CompanyOctober 2012
+ Locally developed companies have managed to maintain strong market share vs. global leaders, unlike in most Western markets
020
CEE – Homegrown Talent Breeds Local Leaders
Global Leaders CEE Equivalents
Siguler Guff & CompanyOctober 2012
ACM International Collegiate Programming World Finals
021
Place University
1 St. Petersburg State University of IT, Mechanics and Optics
2 University of Warsaw
3 Moscow Institute of Physics & Technology
5 Belarusian State University
10 Moscow State University
12 Belarus State University of Informatics and Radioelectronics
13 Saratov State University
18 Jagiellonian University in Krakow
18 National Technical University "Kharkiv Polytechnic Institute"
18 Nizhny Novgorod State University
18 St. Petersburg State University
18 University of Latvia
18 University of Wroclaw
18 Ural Federal University
+ 14 of the top 20 teams in the 2012 ACM International Collegiate Programming World Finals were from CEE universities
Siguler Guff & CompanyOctober 2012
+ Cluster of excellence – sophisticated base of programmers and IT knowledge
+ ~950k science and tech graduates per year – more per-capita than India/EU/North America; heritage of technology and engineering excellence backed by the educational system focus
+ Lower attrition boosts knowledge retention and value
+ Low tax rates encourage entrepreneurship, although further government support necessary
+ Successful history of entrepreneurialism, with significant investments and public listings
022
CEE – Tech Expertise Drives VC Market
Sector IT Software Software Search Web portal
CEE Base Estonia Czech Republic
Russia Russia Russia
Exit Type Acquisition IPO Series D IPO IPO
Valuation*
$8.5 billion $530 million $1 billion $7.6 billion $6.6 billion
Sources: Forbes, Bloomberg* Valuation for IPOs based on market capitalization as of October 12, 2012
Siguler Guff & CompanyOctober 2012 0
23
Country Snapshot – Ukraine+ IT outsourcing sector reached $1 billion in 2011, exceeding arms exports for the first
time
+ Ukraine has the largest pool of engineering talent in CEE, accounting for 25% of the CEE IT offshoring market+ 16,000 graduates with IT specializations each year+ 4,000 IT companies specializing in offshore development+ Ranked 26th most-attractive outsourcing destination in the world by Sourcingline
+ Ukrainian development teams are building significant value for venture-backed companies:
Source: Financial Times, EVCA, Sourcingline, VC Cafe
+ Founded in Ukraine in 2006+ Leader in facial recognition and computer-vision technology+ Acquired by Motorola Mobility (Google) this month for
approximately $40 million
+ Founded in Israel in 2006, development team in Ukraine+ Flash web site development platform + Has raised over $60 million from leading VCs, reportedly rejected $200
million acquisition offer in 2011
+ Founded in the U.S. in 1993, team in Ukraine since 2006+ Leader in software engineering outsourcing+ Held IPO on NYSE in February 2012, market cap is currently over
$800 million
Siguler Guff & CompanyOctober 2012
+ Leading software engineering outsourcing company in CEE and the CIS, with development centers and offices across CEE
+ Operated by an experienced and Western-oriented management group
+ Recognized as one of the fastest growing specialty application development leaders
+ In February 2012, EPAM successfully listed on the NYSE under the ticker symbol “EPAM”
+ Blue-chip diversified client base
024
EPAM – CEE’s IT Powerhouse
Siguler Guff & CompanyOctober 2012 0
25
Over 92% of EPAM’s Workforce is in CEE+ Ukraine is home to EPAM’s largest workforce outside of Belarus and its fastest growing
operations
Siguler Guff & CompanyOctober 2012
Shift to Mobile Data: Just Beginning Globally
026
Source: Informa, Morgan Stanly
Smartphone "Dumb" Mobile Phone0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
953
6,100
Smartphone vs. Basic Mobile Subs
Global Smartphone Penetration:
15.6%
Siguler Guff & CompanyOctober 2012
Mobile Data Usage Will Drive E-Commerce…
027
Source: Kleiner Perkins Caulfield Byers, ComScore
1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12(0.0%)
5.0%
10.0%
15.0%
20.0%
U.S. eCommerce YoY GrowthU.S. Mobile Commerce as % of eCommerce
Siguler Guff & CompanyOctober 2012
…As Well as Advertising Spend
028
Source: Kleiner Perkins Caulfield ByersNote: *Internet (excl. mobile) advertising reached $30B in USA in 2011 per IAB, Mobile advertising reached $1.6B per IAB. Print includes newspaper
and magazine. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their respective time spent share.
Print Radio TV Internet Mobile0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
7%
15%
43%
26%
10%
25%
11%
42%
22%
1%
Time Spent Ad Spend
~$20B+ Opportunity in the U.S.
% of Time Spent in Media vs. % of Ad Spend, U.S. 2011
Siguler Guff & CompanyOctober 2012
29% of Adults in the U.S. Own Tablets, Up From 2% in Mid-2009
029
0%
5%
10%
15%
20%
25%
30%
35%
2%
29%
% of U.S. Adults That Own Tablet Computers or e-Readers
4/2009-1/2012
Source: Kleiner Perkins Caulfield Byers
Siguler Guff & CompanyOctober 2012
Big Data World: Data Needs to Increase 50x by 2020
030
2012 20200
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
2,000,000
100,000,000
Global Data Needs (terabytes)
Source: Oracle
Siguler Guff & CompanyOctober 2012
Takeaway – Technology is Changing Every Aspect of Our Lives
031
What Then Now
Computers Desktops/Notebooks Tablets/Smartphones
Voice Fixed Line Mobile
NewsNewspapers, Dedicated
Reporters Twitter
Note taking Pen and paper Evernote
Books Paperback/Hardcover Amazon Kindle / Apple iBooks
Music CDs, records Spotify
Discounts Clipping coupons Groupon
Yellow pages/directories Phone book Yelp
Video rental Physical stores/Blockbuster Netflix, Amazon
Navigation Paper maps, traffic reports Google Maps, Waze
TelevisionLinear programming, set
channels YouTube, On Demand
Sound Tape recorders SoundCloud
Siguler Guff & CompanyOctober 2012
+ Nearly Ubiquitous High-Speed Wireless Access in Developed Countries
+ Unprecedented Global Technology Innovation
+ Fearless (and Connected) Entrepreneurs
+ Available (and Experienced) Capital
+ Fearless (and Connected) Consumers
+ Inexpensive Devices / Access / Services (Apps)
+ Ability to Reach Millions of New Users in Record (and Accelerating) Time
Upcoming Changes Will Be of an Unprecedented Magnitude
032
Grabbing these trends will determine tomorrow’s TECHNOLOGY BILLIONAIRES
Siguler Guff & CompanyOctober 2012 0
33
DisclosuresThis Presentation is for informational purposes and is not meant as investment advice or a recommendation as to any course of investment action. Further, it not an offer, solicitation or recommendation to purchase or sell any securities or partnership interests of any investment fund managed by or affiliated with Siguler Guff Advisers, LLC (“Siguler Guff”) (each, a “Fund” and, collectively, the “Funds”). This presentation does not present a full or balanced description of any Fund or investment plan, and should not be used as the exclusive basis for an investment decision.This information may include general market activity, industry or sector trends, or other broad-based economic, or market conditions. This information should not be construed as research or investment advice. This information may not be current, and Siguler Guff has no obligation to provide any updates or changes to such information. Economic and market forecasts presented herein reflect our judgment as of the date of this material and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific investor or client. Potential investors and clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances. References to indices, benchmarks or other measure of relative performance over a specified period of time are provided for your information only.
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