naic annual meeting 2000 private equity update 2000 steven p. galante publisher, the private equity...

NAIC Annual Meeting 2000

Private Equity Update 2000

Steven P. Galante

Publisher, The Private Equity Analyst

October 16, 2000


2

‘Nirvana’ versus ‘New Reality’

• Rapid PE growth• Remarkable VC

returns• Increasing

institutional demand• Re-entry of HNW

investors• Rapid economic

growth

• PE growth stabilizes• VC returns return to

earth• Institutional

allocations sated• HNW demand

satisfied?• Slowing economy

1995-1999 2000-????


3

Presentation Overview

• Commitments

• Investments

• Valuations

• Exits

• Performance

• Funding Sources


4

US Private Equity Committed Capital

0102030405060708090

100

Year

Co

mm

itm

en

ts (

$ B

illio

n)

Buyouts

Venture

Year-End Estimate

Source: Venture Economics / NVCA


5

US Private Equity Committed Capital

01020304050607080

Year

An

nu

al C

om

mit

ted

Ca

pit

al (

$B

)

Venture

Buyouts



6

US Venture and Buyouts Investments

0

10

20

30

40

50

60

70

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Year

An

nu

al C

om

mit

ted

Ca

pit

al (

$B

)

Venture

Buyouts



7

U.S. Venture InvestingTotal Investment by Quarter

-

5

10

15

20

25

30

1997

-1

1997

-2

1997

-3

1997

-4

1998

-1

1998

-2

1998

-3

1998

-4

1999

-1

1999

-2

1999

-3

1999

-4

2000

-1

2000

-2

Inv

es

ted

($

Bill

ion

)



8

U.S. Venture InvestingAvg Invested per Company

-

2

4

6

8

10

12

14

16

1997

-1

1997

-2

1997

-3

1997

-4

1998

-1

1998

-2

1998

-3

1998

-4

1999

-1

1999

-2

1999

-3

1999

-4

2000

-1

2000

-2

$ M

illio

n



9

2000ytd Venture Investments By Industry ($Bill)

41.3

13.5

11.5

9.1

4.6

4.5

3.6

2.4

1.5

1.5

$0 $10 $20 $30 $40 $50

Internet Specific

Communications

Software

Other Products

Medical/Health

Semiconductors/Other Elect.

Industrial/Energy

Consumer Related

Biotechnology

Computer Hardware



10

2000 ytd Venture Investments by Stage ($Bill)

48.0

18.0

12.0

10.0

2.0

$0 $10 $20 $30 $40 $50 $60

Expansion

Early Stage

Later Stage

Buyout/Acquisit

Other



11

Average Post Investment Enterprise Valuationof Venture Backed Companies

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

$ M

illio

ns

Avg

Median



12

2000 Median Post Investment Valuationof Venture Backed Internet Related CompaniesBy Internet Sector

$-$10$20$30$40$50$60$70$80$90

Internet Sector

$ M

illio

ns



13

Venture Backed IPOsIssues by Year

0

50

100

150

200

250

300

350

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00

Nu

mb

er

of

Iss

ue

s

$0

$5

$10

$15

$20

$25

Off

er

Siz

e $

Mill

ion

Issues

Offer Size



14

Venture Backed IPOsIssues by MonthJanuary 1995- September 2000

0

10

20

30

40

Nu

mb

er

of

Iss

ue

s

$0

$1

$2

$3

$4

Off

er

Siz

e $

mill

ion

IssuesOffer Size



15

Percent of IPOs Profitable at IssueVenture Backed Versus All Issues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Quarter

Pc

t o

f Is

su

es

Pro

fita

ble

at

IPO

Venture Backed

All IPOs



16

Public Market Returns: Venture-Backed Stocks vs. Indices

Index YTD 1-YR 3-YR 5YR 10 YRPVCI 92.6% 92.6 42.3 37.1 26.2

S&P 500 19.5% 19.5 26.6 26.2 15.3

NASDAQ 85.6% 85.6 46.6 40.2 24.5

Dow 25.2% 25.5 21.3 24.6 15.4

Index YTD 1-YR 3-YR 5YR 10 YRPVCI -7.2 44.8 35.3 27.1 27.1

S&P 500 -0.2 11.0 17.7 21.1 16.3

NASDAQ -5.8 40.0 34.2 30.3 26.0

Dow -5.0 0.9 12.8 18.8 15.4

As of December 31, 1999

As of September 15, 2000



17

US Private Equity Performance BenchmarksUS Limited Partnerships Formed 1969-1999Cumulative Performance Net to Investors as of 3/31/00

Sample 3mo 6mo 1yr 3yr 5yr 10yr 20yrEarly/Seed Stage 12.9 92.0 91.2 47.9 46.6 24.5 18.9

Balanced Venture 21.5 117.0 50.2 28.2 30.1 18.5 15.1

Later Stage Venture 16.9 56.1 55.5 28.4 34.8 25.4 17.5

All Venture 16.7 88.0 62.5 33.7 35.2 20.8 16.3

All Buyouts 8.5 19.8 15.2 16.6 16.7 16.7 19.3

Mezzanine 2.9 7.1 15.3 9.5 10.6 10.6 10.5

All Private Equity 11.8 42.4 28.7 22.3 22.7 18.4 17.6



18

Rolling Five Year IRRsVenture vs Buyouts

0

10

20

30

40

50

60

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Year

5-y

ea

r IR

R

Venture

Buyouts



19

So Where Will Money Come From?


20

Four Sources

• U.S. Institutions (but in smaller quantities)

• Foreign Institutions (just starting)

• Funds of funds (but mainly established ones)

• High-net-worth investors


21

Heyday for Funds of Funds

$0.6 $0.6 $0.7$1.9 $1.8

$7.8

$14.1

$12.0

$18.7

$0

$5

$10

$15

$20

'92 '93 '94 '95 '96 '97 '98 '99 '00

$ b

illi

on

s

Commitments to Funds of Funds

Est.


22

‘Market Share’ of Funds of Funds

3.4%

5.6%

8.9%

12.8% 12.5%

0%

2%

4%

6%

8%

10%

12%

14%

1996 1997 1998 1999 2000

Five-Year Moving Averages


23

Conclusions

• Money remains available

• You must expand universe of contacts

• Track record is still important

• Differentiation and relevant skill set are critical

naic annual meeting 2000 private equity update 2000 steven p. galante publisher, the private equity...

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