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State of the US VC Market

An introduction to GGV Capital and overview of the state of the US VC market by GGV Managing Partner Glenn Solomon

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State of the US VC Market

  1. Blackhorse Silicon Valley Trip: GGV introduction & State of the VC Market June 2015 Glenn Solomon Managing Partner, GGV Capital
  2. Table of Contents Table of Contents • GGV Capital Highlights • Market Overview • IPO Trends • M&A Trends • US Venture Capital Trends
  3. GGV Capital Highlights
  4. 15 Years of Investing in the US & China Resulting in 18 IPOs since 2010 Resulting in 10 Private $1B+ Outcomes Didi Dache Resulting in 21 $1B+ Outcomes AAC Technologies Tujia爱屋吉屋
  5. Our Proven Sectors Propel Deal Flow and Success E-Commerce Xiaohongshu Travel Didi Dache Internet of Things 智米 Zhimi Gaming AAC Technologies Digital Media / Marketing Youku-Tudou Pandora LightChaser Percolate SoundCloud Buddy Media Cross-Border Ehang Zepp Wish Quixey Chukong OnDemand Services Opendoor 51Credit Xiaozhan IWJW Didi Dache FlightCar SaaS / Cloud Zendesk 21Vianet SuccessFactors Synack Kingsoft WPS Domo Global Discovery Prynt Wigo CareerDean Grubmarket Dianhuabang Totspot
  6. Fund V Ecosystems INTERNET OF THINGS COMMERCE M O M S / P E T S L I F E S T Y L EA C C E S S O R I E S Mo Tech 智米 Zhimi CLOUD / SAAS ON DEMAND SERVICES MOBILE / SOCIAL / GAMES Baobao Exutech Xiaohongshu G O O D S E D U C A T I O NA U T O H O M E F I N A N C E 酷家乐 爱屋 吉屋 养车 点点 Didi Taxi 51zhangdan Opendoor
  7. Deal Profile • Cross-border advantage • Sector focus • Multi-stage investment • Market leader with 10x return profile • Typically lead Series A or Series B • Median: $8-10m for 10-20%, double down on winners Our Eco-system PartnersConsistent Investment Strategy
  8. GGV Capital: Single Partnership Team Hany Nada Jeff Richards Glenn Solomon Hans Tung Jixun Foo Joined GGV in 2006 Prior: DFJ ePlanet, NSTB Singapore, HP Representative investments: MediaV, Qunar, Youku-Tudou, Meilishuo, Grabtaxi Founding Partner Prior: Piper Jaffray Representative investments: DraftKings, Glu Mobile, Houzz, Youku-Tudou, Soundcloud Joined GGV in 2008 Prior: Verisign, Founder of R4, QuantumShift, PWC Representative investments: Appirio, BlueKai, Buddy Media, HotelTonight, Flipboard Joined GGV in 2006 Prior: Partech, SPO, Goldman, Sachs & Co. Representative investments: AlienVault, Nimble Storage, Pandora, Square, Zendesk, SuccessFactors Joined GGV in 2013 Prior: Qiming, Bessemer, Crimson Asia, HelloAsia, Merrill Lynch Representative investments: Forgame, Wish, Curse, Xiaomi, Xiaohongxu Jenny Lee Joined GGV in 2005 Prior: JAFCO Asia, Morgan Stanley, ST Aerospace Representative investments: YY, 21Vianet, Pactera, Chukong, Zepp, Xiaozhan
  9. Market Overview
  10. VC Dollars Growing, but Deal # Holding Steady 0 500 1,000 1,500 2,000 2,500 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Q1 '98 Q1 '99 Q1 '00 Q1 '01 Q1 '02 Q1 '03 Q1 '04 Q1 '05 Q1 '06 Q1 '07 Q1 '08 Q1 '09 Q1 '10 Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 USDMillions US Technology Venture Capital Funding 1998 - Q1 2015 $M Invested Number of Deals Source: MoneyTree, PwC and the National Venture Capital Association. US venture capital dollar volumes have grown significantly since the recession, reaching nearly $15B in Q4 2014, but are still far off from the high of $28B reached in Q1 2000 at the peak of the tech bubble. Volume of deals has been more stable, reflecting increasing deal sizes.
  11. Expansion & Late Stage Rounds Growing in Size Average deal sizes for seed and early stage companies have been relatively stable since 2000, but expansion and later stage round sizes have dipped and rebounded with the market, and are now at around 2000 levels. $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 Q1 '98 Q1 '99 Q1 '00 Q1 '01 Q1 '02 Q1 '03 Q1 '04 Q1 '05 Q1 '06 Q1 '07 Q1 '08 Q1 '09 Q1 '10 Q1 '11 Q1 '12 Q1 '13 Q1 '14 Q1 '15 USDMillions US Tech VC: Average Funding Amount per Deal by Stage Seed Early Expansion Later Average Deal Size by Year: Seed Early Expansion Later 1998 $2.6M $5.3M $6.6M $8.3M 2000 $4.5M $8.9M $15.9M $22.4M 2009 $4.5M $5.0M $7.4M $7.9M Q1 2015 $4.8M $7.5M $18.3M $20.3M Source: MoneyTree, PwC and the National Venture Capital Association.
  12. M&A Volumes at 2-Year Low After Record Q4 ‘14 $5,967 $6,306 $6,935 $4,899 $3,671 $6,304 $8,688 $4,031 $1,019 $4,371 $4,857 $6,663 $7,620 $3,643 $8,590 $27,787 $2,050 138 97 142 125 114 124 124 129 85 98 116 94 115 119 135 110 86 0 20 40 60 80 100 120 140 160 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 USDMillions US Venture-Backed M&A Total Disclosed M&A Value $(M) Total M&A Deals Source: NVCA & Thomson Reuters. The first quarter of 2015 has been slow for venture-backed M&A at $2B in disclosed deal value and 86 total deals, the lowest since Q1 2013.
  13. # of IPOs Similarly at 2-Year Lows in Q1 ‘15 $1,527 $5,635 $476 $2,803 $1,683 $17,228 $1,141 $1,408 $717 $2,250 $2,781 $5,320 $3,405 $5,040 $2,592 $4,363 $1,433 14 20 5 11 19 12 10 8 8 22 27 24 37 29 23 27 17 0 5 10 15 20 25 30 35 40 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 USDMillions US Venture-Backed IPOs Total IPO Offer Amount ($M) Total IPOs The first quarter of 2015 has been slow for tech IPOs as well, with the lowest # for IPOs for a quarter since Q1 2013. Source: NVCA & Thomson Reuters.
  14. US IPO Trends
  15. Median Years to IPO Increasing Over Time… 6.5 9 5 6 6.5 7 6 5.5 5.5 6 9 9 8 8 8 8 7 7 6 4 5 9 9 7 8 9 9 8 14 11 11 10 9 9 11 0 2 4 6 8 10 12 14 16 US Tech IPOs: Median Age of Company (Years) Technology companies that IPO’ed in 2014 had a median age of 11 years, up significantly from the trough of 4 years in 1999. Since the financial recession starting in 2008, the median age of a tech IPO company has been high relative to historical levels. Source: Jay Ritter, University of Florida.
  16. …And the Revenue Bar for Going Public is High… $16 $13 $11 $9 $10 $13 $13 $18 $24 $32 $29 $35 $23 $27 $21 $22 $17 $22 $22 $12 $12 $25 $95 $86 $56 $68 $58 $70 $157 $174 $120 $141 $108 $106 $91 0 20 40 60 80 100 120 140 160 180 200 US Tech IPOs: Median Sales (Nominal, $M) Tech companies’ median revenue at time of IPO was at record levels during 2008-2013, and remained high in 2014 at nearly $100M. Source: Jay Ritter, University of Florida.
  17. …But Profitability is Not a Prerequisite… 91% 88% 83% 71% 80% 84% 74% 86% 79% 77% 94% 74% 65% 74% 70% 71% 47% 50% 36% 14% 14% 30% 40% 39% 44% 36% 50% 29% 67% 71% 64% 36% 44% 28% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% US Tech IPOs: % of Companies that were Profitable Source: Jay Ritter, University of Florida. Despite the relatively older age and higher revenue levels shown by tech IPOs since 2008, % of companies showing profitability dropped in 2014 to nearly 1999-2000 levels, indicating that lack of profitability has not been a barrier to going public.
  18. 2014’s Top >$1B Tech IPOs Were Enterprise Companies Source: Capital IQ. Data as of 6/26/15. Out of 2014’s >$1B Market Cap, venture-backed tech IPOs, horizontal SaaS (Zendesk, Paylocity) and enterprise infrastructure (New Relic, Hortonworks, Arista Networks) were the best performing categories. Post-IPO Trading Days -100% -50% 0% 50% 100% 150% 200% 250% 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 135 140 145 150 155 160 165 170 175 180 185 190 195 200 205 210 215 220 225 230 235 240 245 250 255 260 265 270 275 280 285 290 295 300 305 310 315 320 325 2014 US Tech IPOs: Share Price Performance vs. IPO Offer Price Hortonworks New Relic LendingClub Wayfair Arista Zendesk Opower Grubhub King Paylocity Coupons.com Hortonworks: +64% from Offer Arista: +91% from Offer Zendesk: +163% from Offer New Relic: +54% from Offer Paylocity: +109% from Offer Gruhub: +33% from Offer Wayfair: +32% from Offer Opower: -39% from Offer King: -37% from Offer Coupons.com: -26% from Offer Lending Club: +2% from Offer
  19. 2015’s Tech IPOs Show Early Promise -40% -20% 0% 20% 40% 60% 80% 100% 120% 140% 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 2015 US Venture-Backed IPOs: Share Price Performance vs. IPO Offer Price MindBody FitBit Shopify Etsy GoDaddy Box Shopify: + 97% from Offer GoDaddy: + 48% from Offer Price Etsy: - 11% from Offer Price Box: +36% from Offer Price Fitbit: +74% from Offer Price Mindbody: -1% from Offer Price Source: Capital IQ. Data as of 6/26/15. Of the 6 major venture / growth-equity backed tech IPOs in 2015, 4 (Fitbit, Shopify, GoDaddy, Box) are trading significantly above their offering prices. The other two, Mindbody and Etsy have both struggled in the public markets. Post-IPO Trading Days
  20. US M&A Trends
  21. M&A Deal Value Reached 16-Month High in May ‘15 Source: FactSet. US M&A (All Sectors) by Volume and Aggregate Deal Value
  22. At Least 34 2014 – 2015 YTD Tech M&As with TEV >$1B Acquiror Target Announced TEV LTM Revenue TEV / LTM Rev Target Industry Cox Automotive, Inc. Dealertrack Technologies, Inc. 06/15/15 $4,459.5 $948.4 4.7x Internet Software and Services EMC Corporation Virtustream, Inc. 05/26/15 $1,200.0 NA NA Internet Software and Services Verizon AOL Inc. 05/12/15 $4,282.5 $2,569.0 1.7x Internet Software and Services Capgemini North America, Inc. iGATE Corporation 04/27/15 $4,453.6 $1,288.1 3.5x IT Services Permira & CPPIB Informatica Corporation 04/07/15 $4,844.4 $1,055.4 4.6x Software DH Corporation Fundtech Ltd. 03/30/15 $1,250.0 $262.7 4.8x Software Bain Capital, LLC Blue Coat Systems Inc. 03/10/15 $2,400.0 NA NA Communications Equipment Hewlett-Packard Company Aruba Networks, Inc. 03/02/15 $2,359.7 $812.4 2.9x Communications Equipment Expedia Inc. Orbitz Worldwide, Inc. 02/12/15 $1,691.6 $932.0 1.8x Internet and Catalog Retail SS&C Technologies Holdings, Inc. Advent Software, Inc. 02/02/15 $2,549.6 $396.8 6.4x Software CommScope Holding Company, Inc. TE Connectivity Ltd., Telecom, 01/28/15 $3,059.0 $1,900.0 1.6x Communications Equipment Ontario Teachers' Riverbed Technology, Inc. 12/15/14 $3,468.4 $1,089.1 3.2x Communications Equipment Publicis Groupe SA Sapient Corp. 11/03/14 $3,376.4 $1,383.1 2.4x IT Services Engility Holdings, Inc. TASC, Inc. 10/28/14 $1,100.0 NA NA IT Services Vista Equity Partners TIBCO Software Inc. 09/29/14 $4,159.3 $1,076.2 3.9x Software SAP America, Inc. Concur Technologies, Inc. 09/18/14 $7,651.6 $667.9 11.5x Software Micro Focus International plc The Attachmate Group, Inc. 09/15/14 $1,418.2 $575.0 2.5x Software Alliance Data Systems Conversant, Inc. 09/11/14 $2,365.3 $593.8 4.0x Internet Software and Services Thoma Bravo, LLC Compuware Corporation 09/02/14 $2,090.9 $714.5 2.9x Software Shaw Communications, Inc. ViaWest, Inc. 07/31/14 $1,200.0 $168.0 7.1x Internet Software and Services Zillow Trulia, Inc. 07/28/14 $3,090.5 $208.6 14.8x Internet Software and Services Aristocrat Leisure Ltd. Video Gaming Technologies, Inc. 07/06/14 $1,283.0 $236.0 5.4x Electronic Equipment, Instruments and Components Oracle Corporation MICROS Systems, Inc. 06/23/14 $4,604.1 $1,337.9 3.4x Software TE Connectivity Ltd. Measurement Specialties Inc. 06/18/14 $1,603.5 $412.7 3.9x Electronic Equipment, Instruments and Components SanDisk Corp. Fusion-io, Inc. 06/16/14 $1,050.4 $387.4 2.7x Technology Hardware, Storage and Peripherals The Priceline Group Inc. OpenTable, Inc. 06/13/14 $2,495.5 $198.3 12.6x Internet Software and Services KKR Internet Brands, Inc. 06/02/14 $1,100.0 NA NA Internet Software and Services Cobham plc Aeroflex Holding Corp. 05/20/14 $1,459.9 $639.9 2.3x Electronic Equipment, Instruments and Components NPC Group, Inc. Mercury Payment Systems, LLC 05/12/14 $1,650.0 $237.0 7.0x Software Hellman & Friedman Renaissance Learning Inc. 03/13/14 $1,100.0 NA NA Software Elliott Management Riverbed Technology, Inc. 02/25/14 $3,425.4 $1,041.0 3.3x Communications Equipment Facebook, Inc. WhatsApp Inc. 02/19/14 $19,696.7 $10.2 NM Internet Software and Services Lenovo (United States) Inc. Motorola Mobility Holdings, Inc. 01/29/14 $22,201.8 NA NA Communications Equipment VMware, Inc. AirWatch, LLC 01/22/14 $1,545.0 NA NA Software Mean 3.7x Median 4.8x
  23. …But VC-Backed Unicorn M&A is Way Down from Last Year
  24. US Venture Capital Trends
  25. Seed Funding Volumes Have Grown Steadily… Seed venture capital financing dollar and deal volumes have both been on a steady increase, reaching nearly $400M in Q4 2014. $57 $69 $63 $75 $102 $148 $140 $123 $129 $174 $204 $224 $199 $216 $257 $221 $261 $329 $353 $390 63 78 87 81 111 143 152 133 152 188 218 201 202 198 252 191 245 242 247 242 $0 $50 $100 $150 $200 $250 $300 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11 Q4 '11 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 0 50 100 150 200 250 300 350 400 450 Seed Venture Capital Funding & Deal Volume Seed VC Dollars $M # Seed Rounds Source: CB Insights.
  26. …And Seed Deal Sizes are Creeping Upward… Source: CB Insights.
  27. …Driven by a Record Number of Seed Funds… Source: CB Insights. 32 9 4 8 5 4 0 1 7 2 9 91 33 18 12 2 6 7 3 3 7 15 $1-$50 $51-$100 $101-$150 $151-$200 $201-$250 $251-$300 $301-$350 $351-$400 $401-$450 $451-$500 >$501 New VC / Growth Equity Funds Raised by Size (2013 - Q3 2014) 2013 Funds Raised 2014 Funds Raised In the first three quarters of 2014, there were 91 micro-VC funds (<$50M AUM) raised.
  28. …But Series A Volumes Overall Remain Steady The “Series A Crunch” persists as seed funding volumes continue to climb, but Series A volumes stay relatively stable. $1,040 $1,338 $1,477 $1,496 $1,310 $1,506 $1,241 $1,838 $1,679 $2,031 $1,646 $1,888220 219 194 228 222 246 232 242 215 256 224 256 0 50 100 150 200 250 300 Q1 '12 Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 0 500 1,000 1,500 2,000 2,500 VC-Backed Series A Financing Series A VC Dollars ($M) # of Rounds Source: CB Insights.
  29. 2014 VC Fundraising Far Exceeded Tech IPO Proceeds Source: CB Insights.
  30. …And the Gap Has Only Widened in 2015 Source: CB Insights.
  31. Entrepreneurs are Accessing Diverse Capital Sources Selected Early Stage SMB / Startup Crowdfunding Platforms Over $104M raised for early stage tech startups in 2014 (estimated ~$70M in 2013) Over $300M raised for SMBs in total Over $200M raised for SMBs in total Over $189M raised for SMBs in total Over $135M raised for SMBs in total Over $100M raised for SMBs in total Over $90M raised for SMBs in total Over $70M raised for SMBs in total Over $35M raised for early stage tech startups over lifetime of platform Over $10M raised for early stage tech startups over lifetime of platform Startups have access to an increasing number of fundraising options beyond traditional venture capital, at both the early and late stages. Mutual Funds & Hedge Funds in VC-Backed Deals 0 5 10 15 20 2011 2012 2013 2014 Janus Fidelity Blackrock Wellington T. Rowe # of Mutual Fund Investments in VC-Backed Companies 0 10 20 30 2011 2012 2013 2014 Maverick Coatue Valiant Passport Dragoneer Tiger # of Hedge Fund Investments in VC-Backed Companies
  32. …Yielding More >$1B “Unicorns” Than Ever Before Source: CB Insights. 16 10 16 38 29 2011 2012 2013 2014 2015 YTD New Unicorns Added by Year (YTD as of 5/20/2015) 2015 Pace: 76
  33. ...With Company Friendly Deal Terms (US standards) Fenwick & West conducted a survey of 37 companies who raised money at valuations >$1 Billion in the 12 months prior to March 31st, 2015 to evaluate the impact of deal terms on potential returns. Downside protections were stronger than upside benefits, and liquidation preferences and minimum IPO conversion prices in these unicorn deals significantly reduce downside risk for VCs. As a result, “valuations of these companies could fall on average by 90% before the unicorn investors would suffer a loss on their investment.” Source: Fenwick & West, “The Terms Behind the Unicorn Valuations.” Highlights Downside Protections • For the 37 “unicorns” in the survey, average valuation was $4.4B and median valuation was $1.6B (implying a few super-unicorns in the mix) • The average valuation increase over the prior round was 180% • 25% of financings were led by traditional VCs, 75% by non- traditional VCs (mutual funds, hedge funds, sovereign wealth, corporations) • 35% of the deals were valued at $1-$1.1B, implying that the companies were optimizing for attaining unicorn status in their negotiations Upside Participation 100% 19% 16% 14% 14% Liquidation Preference Senior Liquidation Preference IPO Price Must > Investment Price Payment of More Shares if IPO Price < Investment Price Weighted average future financing anti- dilution 5% 3% 11% Participating Preferred Multiple Preferences IPO Auto-Convert to Common Above Price Paid by Investor

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