Whats Going On'in the Venture

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Whats Going On.in the Venture Startup
Business?
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Whats Going On..in the Venture Business?
Apr. 2000 Mar. 2000

• Public markets are terrible (NASDAQ..go bye-bye)
• Corporate spending consumer confidence gone.
• Private equity investors are paralyzed

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20 Year Historical Portfolio Outlook for VC Firms
Total Write-off
Get a little more than our back, but not worth
the effort
Home Runs
Number of Successful Companies in a Cycle
2x-4x
5x-10x
0x-1x
Return Multiple Expectation
4
5 Year Historical Portfolio Outlook
Conclusion Crazy Time
Total Write-off
Home Runs
Get a little more than our back, but not worth
the effort
Number of Successful Companies in a Cycle
2x-4x
5x-10x
0x-1x
Return Multiple Expectation
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Whats Been Going On..

• Incredible cycle, bigger / faster than others
  weve seen
• Touched so many components of society
• Commerce Amazon Communication - IM, Community
  Ebay
• But if you look at NASDAQ on a 20 year basis..we
  are just heading toward normalcy

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What does this mean to the Venture Capital
Business ?

• Reduced access to capital
• Focus on reducing burn rate and extending runway
• Conservative approach to company growth
• Sufficient reserves allocated for follow-on
  financings
• Focus on achieving profitability
• Increased management flow
• Numerous senior-level executives left Fortune
  1000 in recent years
• Startups get in the blood
• Currently looking for fundamental plays that
  leverage the Network
• Public markets temporarily unpredictable
• Expect window to open for market leading,
  profitable companies
• Driving companies to achieve required milestones
  for public market acceptance

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Whats Going On for Startups
..and What Does it Mean to You?

• Its tougher, buthave a long term perspective.
• The Internet cycle is fundamentally no
  different than semiconductor, client/server,
  networking or bio-tech cycle
• Unending march of technology innovation NOT
  slowing down
• RD expenditures as a of corporate spending
  steadily increased over the last 10 years
• Technology innovation is key catalyst to economic
  growth
• Huge spoils will go to victors of technology
  markets

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Pace at which companies are built become more
rational
Product launch
Proven consumer acceptance
Profitability
IPO
50m _at_250m
IPO
Mezz
2nd Round
1st Round
25m _at_50m
Amount raised _at_ pre-money valuation
5m _at_25m
1st Round
seed
1m _at_5m
seed
time
New Paradigm Accelerated Cycle
Traditional Cycle
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Infrastructure software are the only Internet
segments attracting increasing amounts of capital
Source VentureEdge
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Focus on the Fundamental Plays

• In a crazy market, people will try anything (e.g.
  StockBack)
• In a tight market..things that MUST get bought,
  still get bought.
• What does a company need in order to be in
  business today?
• Electricity Phone Computer
• What does a business NEED in order to be in
  business tomorrow?

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So You Want to Be in Business?
Enhanced Communications (Wireless Email)
Secure Corporate Network
Multiple Access Points for Employees Customers
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Examples.Current Investment Trends

• Wireless (Enhanced Communications)
• Corporate campuses will access data via emerging
  standards like 802.11 Bluetooth
• Productivity driven PDAs (Blackberry, Wireless
  Knowledge), more pervasive than PC
• Wide Area Networks (WANs), Metropolitan Area
  Networks (MANs) will explode
• Network Appliances.the Utilities (Secure
  Corporate Network)
• You dont buy a phone switch, keypad and speaker
  to deploy a phone system
• In the future you wont buy hardware, software
  and IT support to deploy network functions.they
  will be sold as embedded components
• Database (BaseFive), Security (CheckPoint),
  Messaging (MessageOne)
• Business Information Networks (Multiple Points of
  Customer/Employee Access)
• Automation of the supply chain (Asera, Comergent)
• CRM (Siebel, Salesforce.com)
• Public and private marketplaces (yes! B2B).
  efficiencies too great to ignore

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Belief in the Entrepreneurial Dream

• Large companies are handicapped
• Bureaucratic, constrained, dont work hard
• Heavily reduced budgets/aspirations
• Entrepreneurs can change the world
• Ingenuity, hard work, willingness to take risks,
  and restlessness
• Seemingly small ideas can change the world
• Dell, eBay, Google

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Think Different

• Do not buy into idea that technology plays have
  been made.and you should
• B2B (Back-to-Banking)
• B2C (Back-to-Consulting)
• The businesses that will be built on top of the
  Network have only begun to be identified.
• Remember INFORMATION NETWORKSwill rule the
  economy.
• Do something youre passionate about.
• Do something fundamental.