Keynote presentation on angel investing from the Cyberport 2009 Annual Venture Forum in Hong Kong

1. Cyberport Venture Capital Forum 2009
Keynote on Angel Investing
Aydin Senkut
Twitter: @asenkut
aydin@felicisvc.com
© 2009 Felicis Ventures LLC

2. Aydin Senkut – Felicis Ventures
Bringing operational excellence & scaling experience to funding start-ups
Founder & Active Angel Investor @ Felicis Ventures | 2005 – 2009
 Portfolio of 50+ Companies
 7 Exits including Mint (acquired by Intuit), Plusmo (acquired by AT&T), Powerset (acquired by Microsoft)
 Every other portfolio company had an up round with a reputable VC
Strategic Sales and Product Management @ Google | 1999 – 2005
 First portal deals in: Japan, China, Korea, Taiwan, Germany, Brazil
(closed portal deals of $100M+ revenues)
 First site-search deal with Sony
(Global Launch in 20+ countries – seeding Enterprise Search Appliance)
 First Product Manager / worked for Larry Page
(Launched first 10 International sites for Google along with other products)
Product Manager @ SGI | 1996 – 1999
 Product Manager, Data Mining &Visualization (team of 20 engineers)
© 2009 Felicis Ventures LLC

3. Venture Capital Ecosystem
Idea Start up Intro Rollout Growth Expansion Maturity
Inv. Banks / PE
$10MM - 100MM+
Grants of up to $1MM
Acquisition Stage / IPO /
Mergers
Revenue / EBITDA
Angel Investors
$10k – $1MM Investment Banks & PE
Funds
Venture Capital
Friends, Family or Funds
Grants
Individual Angels / Groups /
Boutique VCs
© 2009 Felicis Ventures LLC

4. What is an Angel Investor ?
Anyone who provides private capital to a [non family] start-up
 Usually the first outside investor
 Invest with the expectation of a financial return
 Invest usually locally and regionally
 Participate actively in the investment process
 Usually care about the entrepreneurs and the companies they invest in /
interested in building personal relationships with companies & employees
 Offer advice and guidance to founders
* Source: Wall Street Journal – October 31, 2009
© 2009 Felicis Ventures LLC

5. Angel Investors in the US
225,000
U.S. Estimate Of Estimate of Active Investors In Angel Groups
Millionaires Informal Angels
Investors (Center For Venture Research)
* Source: Angel Capital Association Presentation by Ian Sobieski, Band of Angels, Oct 2007
© 2009 Felicis Ventures LLC

6. Rising Popularity of Angel Investing
3x Growth in North American Angel Organizations in 7 yrs
NUMBER OF ANGEL ORGANIZATIONS
* Source: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-06 data)
© 2009 Felicis Ventures LLC

7. Angel Investing – Strength in Numbers
Angel Groups in the US:
 Have 44 members on average (38 median)
 Well spread out across the country (in 43 states)
 Invest close by
(50% invest within a 4 hour drive, 30% invest within State or Region)
 Invest around $250-500K per investment round
 Leverage their groups for deal-flow, due diligence, and
diversification of their investments
 Expect an exit around 5-7 years and a multiple north of 10x
* Source: Wall Street Journal – October 31, 2009
© 2009 Felicis Ventures LLC

8. Angel Investing – Investment Focus
Internet / Software lead other segments
* Source: Center for Venture Research (pre 03 data) and Kauffman Foundation/ACEF (04-06 data)
© 2009 Felicis Ventures LLC

9. Angel Investments in Perspective
In the Context of Venture Capital
Early Stage to Late Stage
3,416 Deals
Average Deal Size:
$7,500,000
51,000 Deals
Average Deal Size:
$500,000
2007 Angel Investments 2007 VC Investments
* Source: University of New Hampshire Center for Venture Research, Price Waterhouse Coopers
© 2009 Felicis Ventures LLC

10. Venture Capital is Highly Concentrated
Silicon Valley (40%) and NY (7%)
account for nearly half of venture investment
* Source: NVCA Research 2009; PriceWaterhouseCoopers
© 2009 Felicis Ventures LLC

11. What Makes Silicon Valley Special ?
Tolerate Failure, Iterate, Elite Universities, Eco-system
 There is no Success without Failure
(Twitter, Zappos, Pure Digital - Flip)
 The Path to Success is Not Necessarily Straight
(Ideas Change, Launch Fast, Iterate Quickly)
Average product release cycle of select Felicis companies like Justin.tv is 2 weeks
 Elite Universities (with Global, Highly Selected Student Bodies)
 Multiple Generations of Successful Entrepreneurs Act as Mentors / Angels
© 2009 Felicis Ventures LLC

12. Silicon Valley Success Story
“Internet is the Greatest Legal Wealth Creation in History”
Last Valuation
Total $Raised Last Valuation ExitType Multiple InYears Founded at IPO or Exit
Facebook $716.0 $10,000 - 14 5 2004 2009
Twitter $55.0 $285 - 5 3 2006 2009
Zappos $62.8 $920 M&A 15 10 1999 2009
Adify $27.0 $300 M&A 11 2 2006 2008
Google $25.1 $23,100 IPO 920 7 1998 2005
Bebo $15.0 $850 M&A 57 3 2005 2008
Zimbra $14.5 $350 M&A 24 3 2004 2007
Photobucket $13.5 $300 M&A 22 4 2003 2007
YouTube $11.5 $1,650 M&A 143 1 2005 2006
Last.fm $5.0 $280 M&A 56 5 2002 2007
Note: All amounts in millions
• Consumer internet still offers best path to high multiple returns
• Key differentiator: capital efficiency
• Virtually all the big successes were first backed by angels
© 2009 Felicis Ventures LLC

13. What Makes a Great Company ?
Great People, Passion, Focus, Innovation, Fun
 Focus, Critical Use Case, Clarity of Purpose
Example: Google Spell Check
 Ability to attract great people (team, investors, advisors)
Example: Mint
 Passion
Example: Zappos
 Innovation (thinking out of the box, even when resources are tight)
 Fun + Unique Culture
© 2009 Felicis Ventures LLC

14. What Does It Take…
…To Be A Successful [ Angel ] Investor ?
 Strong Personal Brand & Network
It takes money AND time, one relationship at a time; add value, create goodwill
 Proprietary Deal-flow
Have a plan, create an unfair advantage; social friends do not equal to great deal-flow
 Ability to Relate to Founders
Examples: Mint, Imageshack
 Judgment (Domain Expertise, Experience, Timing, Nose for Talent)
It might take tens of deals and years [& losses] to find the winners
© 2009 Felicis Ventures LLC

15. What is a Good Deal (or Valuation) ?
It Depends and It’s Cyclical
VALUATION OF SEED ROUNDS
All amounts in millions
© 2009 Felicis Ventures LLC

16. Growth is Key to Successful Investing
CHINA has the Fastest Growing Internet and Mobile Markets
INTERNET USER NET ADDITIONS
Global 2007Users
Rank Country Added(000s) 2007Y/Y Growth Penetration
1 China 73,000 53% 16%
2 US 9,800 5% 73%
3 Brazil 7,400 17% 26%
6 India 5,000 7% 7%
8 Russia 4,311 17% 21%
MOBILE SUBSCRIBER NET ADDITIONS
Global 2007 Net Subs
Rank Country Added(000s) 2007Y/Y Growth Penetration
1 China 86,228 19% 41%
2 India 67,570 41% 21%
4 Brazil 21,062 21% 64%
5 Russia 19,326 13% 120%
7 US 13,596 6% 85%
Source: Morgan Stanley Research, ITU
© 2009 Felicis Ventures LLC

17. Venture Capital / China = Opportunity
Venture Investment in China now ~14% of US (up from 1%)
[TOTAL FUNDS INVESTED]
All amounts in millions
US
China
Source:US Data - NVCA Research 2009; PriceWaterhouseCoopers / China Data: Zero2Ipo Research 2009
© 2009 Felicis Ventures LLC

18. Venture Capital / China = Upside
Funds raised last year roughly 25% of Funds raised in US
[TOTAL FUNDS RAISED]
All amounts in millions
US
China
Source:US Data - NVCA Research 2009; PriceWaterhouseCoopers / China Data: Zero2Ipo Research 2009
© 2009 Felicis Ventures LLC

19. China – Local Champions
QQ and Baidu winning big in China versus Google
SCALE IS BASED ON THE AVERAGE CHINA TRAFFIC OF GOOGLE IN ALL YEARS.
Source: Data from Google Insights for Search
© 2009 Felicis Ventures LLC

20. Next Big Things
Education • Online Education
• Local Search
Search
• Subjective Search
• Personal Genomics
Health
• Electronic Health Records
• Data Driven Smart Web Apps
Other
• Crowd sourcing
© 2009 Felicis Ventures LLC

21. Seeding Future Winners - Incubators
LEADING EXAMPLE IN THE US
• Review 600+ companies every 6 months
• Each batch around 20+ companies (~4% acceptance rate)*
• Investment: $5K USD + $5K USD per founder
• Stake: Usually 2-10%
INTERESTING FACTS
• 25% of accepted companies are international
• Last batch, more than half the companies changed what they were working on
• Last Investor Day included 27 companies and 210 Investors
KEY RESULTS
Companies Acquired Companies with sizeable VC rounds
• Reddit (acquired by Conde Nast) • Heyzap • Justin.tv
• Parakey (acquired by Facebook) • Loopt • Xobni
• Omnisio (acquired by Youtube/Google) • Scribd • Posterous
• Zenter (acquired by Google)
• Anywhere.fm (acquired by iMeem)
© 2009 Felicis Ventures LLC

22. How Can Incubators Succeed ?
Filter, Stress, Mentor, Engage, Eco-system
 Strong brand & highly selective (admission ratio of 1-5%)
 Limited time (~3 months) to encourage execution and fast iteration
 Heavy Mentorship in all key product areas (especially engineering,
product, and fund-raising)
 Community and participation (Biggest success factor cited by founders)
 Active involvement of investors increases funding rate to 75%*
* Techstars
© 2009 Felicis Ventures LLC

23. Food For Thought
To Many More Internet Leaders from China and HK
TOP GLOBAL INTERNET COMPANIES
Rank Company Country 2009 Market Cap
1 Google US $102B
2 Amazon US $29B
3 Yahoo US $19B
4 eBay US $15B
5 Yahoo JP Japan $14B
6 Softbank Japan $13B
7 Activision US $13B
8 Tencent China $12B
9 Baidu China $6B
10 Rakuten Japan $6B
11 Electronic Arts US $6B
12 Alibaba China $5B
13 NHN Korea $5B
14 NetEase China $3B
15 Expedia US $2B
© 2009 Felicis Ventures LLC

24. Confidential – Copyright Felicis Ventures LLC
© 2009 Felicis Ventures LLC