New Atlantic Ventures
Sweden-US
Entrepreneurial Forum
September 2011
#sweus
John Backus
john@navfund.com
@jcbackus
NAV “At A Glance”
 Early Stage Venture Capital
19 Companies:
Boston (5)
New York City (6)
VA/DC/MD (3)
(CA & WA)
 Modest Fund Size:
‒
$117m current fund (NAV III)
 East Coast Focus
 Top Decile Post-2000 Performance
 Blue Chip LP Base, 50% from EU
 Key Difference: Thesis-Led Investors
NAV Office
Portfolio company
2
Annual US VC fund-raising
Volatility over the past decade
503
Amount raised (US$ B)
► Fund-raising has declined in the United States since 2007.
► 2009 marks the fewest funds raised in 16 years.
► In dollar terms, 2009 was the low point in terms of
dollars raised since 1997, with the exception of 2003.
► 2010 is on pace for another annual decline – only US$6.4
billion raised in 33 funds as of 30 June 2010.
Number of funds
353
289
223
186
155
129
107
161
173
167
172
146
113
91
76
76
48
$2.7
33
$4.6
$4.9
$6.9
$9.4
$14.1
$21.8
$53.5
$83.5
$44.8
$19.4
$8.9
$20.7
$27.9
$30.5
$37.4
$26.6
$14.5
$6.4
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Dow Jones VentureSource; Ernst & Young Venture Insights
US VC funds raised by stage focus
Clear shift in dollars toward multi-stage funds as investors seek
greater flexibility, growth equity opportunities
501 289 154 91 161 172 166 170 145 76 33
23%
Multi-stage
37%
31%
34%
39%
9%
6%
30%
34%
34%
33%
30%
33%
30%
26%
35%
43%
9%
2%
8%
8%
5%
37%
42%
44%
53%
11%
Late-stage
27%
$83.3 $44.8 $ 19.2 $8.9 $20.7 $27.7 $30.3 $37.1 $26.4 $14.5 $6.4
9%
8%
9%
9%
55%
66%
16%
20%
13%
9%
17%
Early-stage
22%
12%
8%
58%
60%
66%
58%
56%
65%
62%
11%
67%
56%
59%
58%
58%
58%
49%
50%
51%
46%
39%
17%
44%
36%
34%
Source: Dow Jones VentureSource;
Ernst & Young Venture Insights
17%
2000
2001
2002
2003
2004
2005
2006
2007
Number of funds closed
2008
2009
2010
2000
2001
2002
2003
2004
2005
2006
2007
2008
Amount of funds closed (US$b)
2009
2010
Declining number of VC firms actively investing
United States
Bay Area
Number of firms making 4 or more investments in year
Number of firms making 1-3 investments in year
1338 1240 1122 1053 1040 1018 1013 998 989
750 635 568 546 564 529 546 542 539 473 325
885 657
288
158
130
142 163 137 156 147 141
110
51
712
462 477 438
404 401 392 390 395 398 363
514
274
398
381
449
405
416
426
'00
375
313
'01
'02
'03
'04
'05
'06
'07
'08
'09 1H'10
New England
167
454 377 306 301
340 304 300 302
249 236 150
86
626
726
724
672
591
613
597
572
614
572
60
42
490
49
49
58
42
52
44
368
'00
'01
'02
'03
'04
'05
'06
'07
Source: Dow Jones VentureSource; Ernst & Young Venture Insights
'08
'09
317
264 243 291 255 258 250
11
205 202
1H'10
'00
'01
'02
'03
'04
'05
'06
'07
34
'08
139
'09 1H'10
US VC fundraising: median fund size
$200
$172
Median amount raised (US$m)
$155
$150
$140
$129
$102
$100
$100
$90
$61
$50
1992
$73
$75
$75
1996
1997
1998
$81
$72
$60
$45
1993
1994
1995
1999
Source: Dow Jones VentureSource; Ernst & Young Venture Insights
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
 Median fund size has grown with shift to multi-stage and growth equity funds
 LP flight to quality means that fewer small firms are succeeding in raising new funds
2010
Why the Decline?
• Entrepreneurs, LPs & GPs got greedy in the late 1990s
–
–
–
–
VC fund sizes ballooned
Too many VCs = too many marginal companies funded
Fund sizes drove shift to late stage
Exit market dried up in US: 9/11 & 9/08
• Returns for the decade were flat, on average
• BUT, many funds small early stage funds did quite well
7
Thesis-Led Approach
Finds Winners in Emerging Fields
• 5-10 years to “big exits”
Need market evolution insight
• A strong thesis targets leaders in the next wave:
– Smart entrepreneurs find investors who “get it”
– Faster decisions
– More value as board members
• We sharpen our investment theses over time:
– As we explore new markets
– As markets and technologies change
“I skate to where the puck is going, not to where it has been”
•
Wayne Gretzky
NHL Hall of Fame Player
8
Learning Sharpens Our Thinking
• We learn
as we go
deeper
NAV III
Prior Funds
AdTech
Social
Media
• Markets
evolve
Digital
Media
• Old markets
grow stale
eCommerce
• New
markets
emerge
Mobile
Financial
Tech
Security
CustomerDriven
Healthcare
SAAS/
Software
9
Mobile:
Info-Tainment Reinvented
“Connected Mobile Devices (tablets, smart phones) will
transform & disrupt information & entertainment industries.”
NAV Companies to Watch
•
•
•
•
Pandora for News/Info
Benchmark + NEA
> 300,000 Users
600 min/user/mo*
• Software that enables
Android tablets
• 60m tablets in 2011
• Top-5 seller on Amazon
*After first month.
10
Technology Wealth Creation / Destruction Cycles
New Companies Often Win Big in New Cycles While Incumbents Often Falter
Mainframe
Computing
1960s
Mini
Computing
1970s
Personal
Computing
1980s
New
Winners
New
Winners
New
Winners
IBM
NCR
Control Data
Sperry
Honeywell
Burroughs
Digital Equipment
Data General
HP
Prime
Computervision
Wang Labs
Microsoft
Cisco
Intel
Apple
Oracle
EMC
Dell
Compaq
Desktop Internet Mobile Internet
Computing
Computing
1990s
2000s
New
Winners
Google
AOL
eBay
Yahoo!
Yahoo! Japan
Amazon.com
Tencent
Alibaba
Baidu
Rakuten
Note: Winners from 1950s to 1980s based on Fortune 500 rankings (revenue-based), desktop Internet winners based on wealth created
from 1995 to respective peak market capitalizations. Source: Factset, Fortune, Morgan Stanley Research.
11
New Computing Cycle Characteristics
Reduce Usage Friction Via Better Processing Power + Improved User Interface + Smaller Form Factor +
Lower Prices + Expanded Services = 10x More Devices
More than Just
Phones
Computing Growth Drivers Over Time, 1960 – 2020E
Devices / Users (MM in Log Scale)
1,000,000
Mobile
Internet
100,000
iPad
Smartphone
Kindle
Desktop
Internet
10,000
Tablet
MP3
Cell phone /
PDA
1000
100
Minicomputer
10
Mainframe
1960
Mobile
Video
1B+ Units /
100MM+ Users
Units
Home
Entertainment
Games
10MM+
Units
1
1MM+
Units
Car Electronics GPS,
ABS, A/V
10B+
Units???
PC
1970
1980
Wireless Home
Appliances
1990
2000
2010
2020
Note: PC installed base reached 100MM in 1993, cellphone / Internet users reached 1B in 2002 / 2005 respectively;
Source: ITU, Mark Lipacis, Morgan Stanley Research.
12
Smartphone > PC Shipments Within 2 Years, Global –
Implies Very Rapid / Land Grab Evolution of Internet Access
Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones, 2005 – 2013E
700
2012E: Inflection Point
Smartphones > Total PCs
Global Unit Shipments (MM)
600
500
400
300
200
100
0
2005
2006
2007
Desktop PCs
2008
2009
Notebook PCs
2010E
2011E
2012E
2013E
Smartphones
Note: Notebook PCs include Netbooks. Source: Katy Huberty, Ehud Gelblum, Morgan Stanley Research.
Data and Estimates as of 9/10
13
Digital Media:
Ad $ Flow to Digital
“$50B in advertising will go digital when new companies deliver
the measurable results brand managers expect.”
NAV Companies to Watch
• Mobile Lead Generation
• $15M+ Revenue
• RRE, Greenhill
• Brand messages in
Captchas, e.g.:
• Interaction  retention
• $15M+ bookings
14
Banner Blindness
and Offer Fatigue
Media Time Spent vs. Ad Spend Still Out of Whack
Internet / Mobile (upside…) vs. Newspaper / Magazine / TV (downside…)
% of Time Spent in Media vs. % of Advertising Spending, USA 2009
50%
% of Total Media Consumption Time
or Advertising Spending
Time Spent
Ad Spend
40%
39%
30%
31%
28%
26%
~$50B
Global
Opportunity
20%
16%
10%
13%
12%
9%
0%
Print
Radio
TV
Internet
Note: Time spent data per NA Technographics (2009), ad spend data per VSS, Internet advertising opportunity assumes online ad spend share
matches time spent share, per Yahoo!. Source: Yahoo! Investor Day, 5/10.
16
e-Commerce 2.0:
Complex Becomes Easy
“Complex products can be sold online: custom, expensive, and
highly-regulated.”
NAV Companies to Watch
• High end runway fashion
• NEA B round
• $10M run rate after 6
months
•
•
•
•
Daily deals 2.0
Mobile-based
Better value for all
Strong start in 6 markets
17
Golden Age of
E-commerce
More consumers buy online (over
70% of internet users)
Cheaper to build e-commerce
company
New business models create new
experiences (Groupon)
Better marketing tools (social
media, e-mail lists, video)
Mobile smartphones
Healthcare Services:
Patients Become Customers
“Unaffordable costs + healthcare reform drive customers to take
control of healthcare spending, causing big change.”
NAV Companies to Watch
• Real time audits of
corporate Rx bills
• Recurring Revenue
• $1M bookings/mo.
• Generic Rx drugs for less
than insurance co-pays
• $15M+ revenue run rate
• Growing 40%/quarter
19
The Rise of
Health Care
Consumerism
$2.6 Trillion Industry
Primary
Care
Rx
Specialists
Hospitals
Consumers seeking
lower cost & better care
New ways of practicing medicine
emerging
Profit sanctuaries being
destroyed
Huge waste becomes
opportunity when
consumers gain control
Policy Conclusions
• Encourage Entrepreneurs
–
–
–
–
Lower tax rates: capital gains
Lower tax rates: stock options
Remove stigma of failure
Locate where partners are
• Encourage LPs
–
–
–
–
Relief from Basel 3 & AIFM
Tax advantage to offset illiquidity
Robust secondary markets
Solve the “bite size” problem
• Build the Ecosystem
– Need lots of acquirors
– Need lots of business partners
– Need big companies to hire from
• Great training programs
• Domain expertise
– Education system focused on
entrepreneurs
– Entrepreneur must be seen as a
successful career
– Pension, health, benefits must
follow entrepreneur
21